Founded in 2004 by Gwen Anderson (Chief Executive Officer) and Calvin Reese (Chief Technology Officer), Acme Life Science Tools is a startup that develops and sells life science instruments to science researchers. Its first product was a cytometer (used to rapidly analyze the characteristics of individual cells) that the company promised would cost significantly less than but provide performance on par with the industry’s gold standard, as well as take up less space than a typical microwave, allowing it to fit on just about any work bench in a lab.
For Acme’s Series A round of funding, Gwen was able to raise $5 million from angel investors, which allowed the company to hire engineers and build a prototype. With this funding, the company hit several major engineering milestones.
However, while Gwen was fundraising for a Series B round, bad news started pouring in. Beta testing wasn’t producing the intended results; the product launch would be delayed by at least six months. Consequently, the VCs negotiating the Series B round cut their pre-money valuation in half. Acme’s Board of Directors was furious and a small contingent of current investors called for Gwen to resign as CEO of the company. With funding running out, the company needed to make a decision fast: look to sell the company or take outside funding for a lower than expected valuation.
This case highlights the pressures faced by entrepreneurs when they take outside funds and have a diverse set of stakeholders. It showcases a situation where the decision-maker must balance multiple interests while seeking a solution that is fair to all. It also challenges students to consider how funding and management decisions impact investors, employees, and founders.