Should udu a Convertible Note?

Abstract

In this field-based case, the founders of udu, Inc. (udu—pronounced "you-do"), a company whose proprietary technology helped private equity clients source deals by identifying target companies and overlooked opportunities, and by shortening the business-development cycle. Clients who had found success with udu's help raved about the technology, but despite their product's promise, the founders were still struggling to find a scalable and profitable application for it, and to grow revenue for the company. The founders eventually sought funding in the amount of $5 million to boost udu's growth potential, but Jay Sarcone, a general partner at Brotherhood Park Ventures, had said udu wasn't ready for that amount because it would not result in a desirable company valuation, and made a far lower offer: $1.3 million in convertible note financing. All three founders agreed that $1.3 million fell far short of their hopes, and that udu would need another fundraising round in a year. But any money, at this point, would help udu progress. Should the founders accept Sarcone's offer, or risk alienating a trusted ally by seeking $5 million elsewhere? And if they did seek $5 million, would it result in a low valuation for udu?

Excerpt

UVA-F-2025

Dec. 14, 2022

Should udu a Convertible Note?

If you are running or working for a private equity fund and you haven't taken bold steps to integrate the latest digital tools and data and analytics (D&A) technology into your business, you may be working with a built-in expiration date.

—“The Digital Transformation Imperative,” KPMG report, 2018

. . .

Keywords: technology, software as a service, SaaS, convertible note, capital raise, angel investing, fundraising, entrepreneurship, private equity