Venture Capital: Road to the Neopets Stock Market

     Aside from tireless days and nights spent preparing documents and doing research, Winston also took a visit to the Games Room and checked out potential competitors in the luck game sector. He discovered that aside from a few popular favourites such as Jubjub Blackjack and Guess the Card, there weren’t any extensively addicting luck games comparable to the potential thrill Sophix and Farvin’s venture will bring. His excitement and steadfast dedication to aiding the Aishas on their company grew even stronger.

     Just as Winston began to doze off in his comfortable office couch, he heard the unmistakable ping sound of another neomail notification:

     To: Winston (Associate)

     From: Lawyerbot (Partner)

     Re: Alien Aisha Vending

     In our previous meetings, we have learned that the founders of Alien Aisha Vending, Farvin and Sophix, face a number of different possibilities in terms of financing their new business. For our next step of focus, Farvin and Sophix are evaluating three different possible funding sources: (i) they could decide to do it alone; (ii) they could decide to obtain the necessary funding from friends and family; or, (iii) they could decide to pursue a strategic joint venture relationship with Virtupets Corporation, with Virtupets providing the necessary funding to develop the business model that Farvin and Sophix set forth in the business plan that they prepared for Alien Aisha Vending.

     Tip for new lawyers working with companies: These three financing alternatives are not unique to these founders. As a practical matter, the financing of any new business follows a predictable pattern that usually involves some variation of the three funding sources currently under consideration by the founders of Alien Aisha Vending.

     We have an update from our new client, Alien Aisha Vending. Farvin and Sophix had their scheduled meeting with Virtupets, Corp. ("Virtupets"), regarding a strategic joint venture to further develop Alien Aisha Vending’s technology, receive additional capital and gain access to certain portions of Virtupets’ resources, including its engineers and sales and marketing personnel. Alien Aisha Vending and Virtupets have not negotiated a term sheet or any other preliminary documents. (A term sheet is a brief document, usually two pages. It outlines the important terms of a business agreement, and is not binding). Instead, Virtupets decided to immediately present a draft of the definitive documents, which is binding.

     In meetings prior to receiving the draft documents from Virtupets’ counsel, Alien Aisha Vending told us that the joint venture is to take the form of a Neopia Central limited liability company. Alien Aisha Vending will contribute all its software technology in exchange for 35% of the equity in the joint venture. Virtupets will contribute 15 million in Neopoints, engineers to refine one of the features of Alien Aisha Vending’s technology, and a number of marketing and sales personnel for 65% of the equity. There will be no other members of the joint venture. Virtupets will appoint three managers and Alien Aisha Vending will appoint two managers, who will be Farvin and Sophix.

     Alien Aisha Vending is very concerned about the role it will have in management and, frankly, is distrustful that Virtupets will treat it fairly. However, in past meetings, Virtupets has assured Alien Aisha Vending that, even though the equity is not evenly split, Virtupets will treat Alien Aisha Vending as a “partner” and will not take any actions or cause the joint venture to take any actions detrimental to Alien Aisha Vending without the consent of Alien Aisha Vending or Alien Aisha Vending’s appointed managers.

     Attached is the proposed operating agreement for the joint venture LLC provided by Virtupets’ counsel. Of course, in order to complete this transaction, we will need agreements to address personnel, intellectual property, and a number of other issues—don’t worry about those drafts for now. The LLC agreement is the master document creating the basic relationship between the parties. A quick read-through shows that this draft does not reflect the deal as described to us by Alien Aisha Vending. Further, the quality of work on the document is far below the standard we would expect in a document prepared by our law firm.

     Your next tasks are as follows:

     1. Review the agreement and prepare a summary of its terms, in the form of a term sheet. The term sheet will help us review the substance of the full agreement with Alien Aisha Vending and boil down the issues for Farvin and Sophix so they can understand the deal Virtupets has presented in its draft. Send me a copy of the term sheet.

     2. Prepare a brief memorandum to me (a) to assist my review of how the draft Operating Agreement addresses the specific terms Alien Aisha Vending described (as reported above) and any material deviations from those terms, and (b) to identify any issues we should discuss with Alien Aisha Vending that the agreement adds to the deal or fails to address. Your memo should: a. Identify matters or deviations that are significant to Alien Aisha Vending and propose possible solutions to address the risks they create. b. Note any drafting, continuity, or defined term problems anywhere in the draft operating agreement, so that when we return a redraft to opposing counsel, it will reflect an error-free, internally consistent document. Unless they change the fundamental economics of the transaction, you may ignore the mechanical processes of the allocation, distribution and capital account sections, as well as any tax or accounting provisions, as those portions of the agreement are being reviewed separately by tax counsel.

     3. Prepare a draft message of no more than 300 words to the client, which will attach the term sheet summary of the draft Operating Agreement (once I have reviewed and signed off on it). Your Neomail should flag for the client the most important issues/problems you identified in the draft Operating Agreement and, if possible, any solutions you have proposed in your memo.

     4. Be prepared to orally present this information in a meeting next week, with myself and Alien Aisha Vending.

     Winston’s initial thoughts after reading Lawyerbot’s neomail included some degree of apprehension at the news of a possible joint venture with Virtupets, Corp. Almost everyone knows of Dr. Sloth and his infamous deeds, but Winston also admired some of Sloth’s business acumen, even if his persona is not viewed so favourably overall.

     For his two Aisha clients, Winston was determined to help them to the best of his abilities and ensure they receive fair dealings with such a formidable entity. Naturally, the sharp disparity in equity distribution alarmed Winston. His intuition aligned with his initial perception that Sloth’s motivations behind the agreement were questionable.

     While it’s understandable that a large and dominating company in the landscape of not just Virtupets Space Station, but the entirety of Neopia, would appear profit-driven and greedy under the direction of Dr. Sloth himself, it is still detrimental to the potential of Alien Aisha Vending’s budding future if incorrectly entangled with the wrong behemoth, leading to inevitable stifling of creative vision and independent course charting.

     From what Winston learned about his clients so far, the two Aishas were not so experienced in dealing with the legal aspects and ramifications of creating a company. As expected, their foremost attention centred on the pursuit of realizing a project that they’ve passionately developed the theoretical aspects for, but requires further funding to see fruition. Winston understood the importance of this juncture in the formation process of the enterprise and vowed to protect the Aishas from any pitfalls to the best of his ability when negotiating terms with Dr. Sloth’s company.

     After a long day of work carrying out Lawyerbot’s requests, Winston again passed by Grundos Cafe, but this time he noticed a larger than usual crowd gathered, with an abundance of Alien Aisha customers especially. Curious on what the commotion was about, Winston took a closer look.

     As he approached the storefront, he saw a large banner that read "Brand New Snacks Unveiled Today!" Odd-looking food items filled the shop’s usual display areas. The tags under the new items raised eyebrows with names such as Strawberry Artichoke, Mustard Ice Cream, and Peanut Butter Pizza.

     "Hey there, Winston! Want to try some of our new recipes?" one of the Grundos called out to him, snapping Winston out of a confused daze.

     "Umm, what is going on with these strange foods?" Winston asked, still confounded.

     "Did you not hear that these menu items are all the rage among our Alien Aisha population?" the Grundo replied. "They may look gross for some pets, but I promise you they are tasty if served fresh, and the Aishas here love them!"

     "Thank you for the info, but I will pass on these for now," Winston said hurriedly as his mind shuddered at the thought of any one of these new snacks entering his digestive tract.

     As he made his way home, Winston could not help but wonder if the new food items he saw today would also appeal to the appetites of his clients Sophix and Farvin. "I will ask when I get the chance, but for now I need to finish Lawyerbot’s assignments before the next meeting."

     To be continued…