45914 GOING PUBLIC
Stephen M. Honig
SETTING THE STAGE
It is June 2000, and recent MIT graduate John Dough and his friend, business
school graduate Mary Manager, decide to pursue a software idea that Dough
has conceptualized. Dough believes that he can design a relational database
that will more tightly store financial information and more quickly access that
information than anything now on the market.
Dough and Manager take their meager savings accounts and $20,000
of credit card advances and form Dough.com Inc., a Delaware corporation.
Dough sits down at his computer and begins to program Dough-Ware.
Mary successfully approaches five business school acquaintances; each
invests $4,000 and each is issued 4% of the company’s stock.
By the spring of 2001, Dough has a working initial version of Dough-
Ware available for testing at the sites of potential clients. The company is com-
pletely out of funds, and is without the necessary liquidity to negotiate for the
test sites, install the software, and work with prospective clients. Dough and
Manager have been networking at venture capital forums, and are able to in-
duce five “angel” investors, wealthy individuals with a history of investing
in emerging technology companies, to invest an aggregate of $250,000. By June
2001, each of Dough and Manager now owns 30% of their company; each of
the original five investors owns 3%; the new angel investors have received a
25% common stock interest. With this new money and with modest interim
payments from the first “beta site,” or test customers, the company begins in-
stallation and testing of its software.