Question Assignments:
1. Brief Case Summary In August of 1995 Javasoft was founded by Sabeer Bhatia and Jack Smith. Their first round of financing was from DFJ in 1996. Hotmail was officially launched on 7/6/1996. The Second round of financing was provided by DFJ in August of 1996. The third round of financing by Menlo Ventures and DFJ was completed in August of 1996. The fourth round of financing by Menlo Ventures and DFJ was in December of 1996. The fifth round and exit round of financing was in December of 1997.

2.
In the first round, Hotmail raised in total of $315,000: $300,000 from DFJ and $15,000 from Rex Smith.
DFJ got 15% for its investment, so the valuation was $2,000,000
Concerns for entrepreneur teams from Sabeer’s and Jack’s perspectives:
○ They were concerned that the investors were receiving participating preferred stock. It would be unfair because the investors “double-dipped”, meaning that they got back their original investment and then shared in the remaining equity pool.
○ They worried about the right of first offer clause, which allowed DFJ to “purchase all or any portion of shares” in the next financing round.
○ They were missing something and those loopholes could come back to haunt them. They had never experienced those negotiations before, so it would be difficult for them to examine and cover every details.
Concerns for investor teams from DFJ’s perspective:
○ The participating preferred stock clause was important to create a disincentive for entrepreneurs to sell the company early in life at a low price.
○ Their stake could be diluted if other big investors come in later.

3. In the third investment round, Menlo offer Hotmail company 2 million investments at price subject to the company’s performance. In the term sheet, Menlo set milestone of the revenue at least 500,000. However, till oct 1997,