Please read the case attached below the question.

Understand how the two capitalization tables below were built. Answer the following:

Why are there 366,667 shares for the angel group in the Top Gun table and 396,000 in the Red Baron table? How were the number of VC shares and founders shares calculated?

EVALUATING VENTURE CAPITAL TERM SHEETS

After a year of intense work on a shoe-string budget, John Stevens and Edward Lopez breathed a sigh of relief. They had just received term sheets from two elite venture capital firms for their startup, Universal MobileApps, Inc. (Universal). Securing this funding would give them the runway they felt they needed to fully develop their product.

As they looked over the term sheets, they realized that they were unfamiliar with the terms of these offers, and that there were differences between the two. Neither Stevens nor Lopez had ever raised venture funding before, so they needed to come up to speed quicklyone term sheet expired in three days, the other in four.

UNIVERSAL MOBILEAPPS

Edward Lopez had been fascinated with computers for as long as he could remember. He grew up in New Jersey, but from the time he started high school, he knew he wanted to move to Silicon Valley and work on the cutting edge of computer technology. As a student in Stanford Universitys computer science department, he had helped develop several commercial applications, and had gone on to work at Google.

Lopezs work at Google concentrated on mobile applications. He was involved in several projects, some of which were entirely in-house efforts, and some involved partnering with other companies. He attended conferences to keep up on the latest developments, as well as meet and network with other programmers. As a young programmer, he was always on the lookout for good talent to recruit to Google. He was also always thinking of new products, and new ways to use technology.

As he talked to programmers developing apps for mobile devices, he realized that there might be a good business opportunity if someone could develop a way for people to easily program and manage apps across multiple platforms, allowing apps on different devices, using different operating systems, to talk to each other. He began to work on this idea in his spare time.

Lopez had met John Stevens several years earlier. At the time, Stevens was an investment banking analyst focusing on the mobile industry, with a particular interest in apps. They had met at a conference, and had a long discussion of the industry and its future.

Stevens had majored in economics as an undergraduate. As an analyst, he liked learning about the mobile industry, and particularly enjoyed the chance to meet people from throughout the industry, see what they were working on, what worked and what did not. However, from the beginning, he wanted to work for a startupthe job as an analyst was preparation for that eventuality. The next step in his preparation was to attend the Stanford Graduate School of Business (GSB), and get his MBA. At Stanford, he participated in a wide range of activities related to entrepreneurship, both at the GSB and in the engineering department. While talking with a group of computer science students, one of them mentioned Lopez, who had been looking for students to help with his project. Remembering their conversation years earlier, Stevens looked up Lopez, and they got together. After discussing the idea in great detail, they decided to form a company, Universal MobilApps, Inc. (Universal). Stevens was excited by the business concept, and was convinced that Lopez had the technical ability to make it happen. Lopez knew he needed help on the business side, and believed that Stevens had the ability, drive, and industry contacts that were needed to succeed.

Lopez and Stevens worked hard to network in the tech community and in early-2012 they began to talk with angels about the possibility of seed funding. In January, they took an investment from Languita Angels, a well-known angel group, in the form of $300,000 in convertible notes. (See Exhibit 1 for the angel term sheet.) They used this money to hire a small staff, and develop software that demonstrated proof of concept on some devices and apps. They then formed technical partnerships with several mobile device manufacturers, including Samsung, Google, Microsoft, and Apple.

They also began searching for new funding; their seed money would run out soon, and they estimated that they needed $3 million, possibly more, to achieve their next major milestone. They did not want to raise money from their technical partners, as this would tie them too closely to the investing manufacturer(s). However, their ability to partner with such a diverse group of companies, including some bitter enemies, impressed the venture capital (VC) community, leading to interest by several top tier VCs.

TWO TERM SHEETS

On June 10, their efforts were rewarded when they received term sheets from two VC firms, Top Gun Venture Partners, and Red Baron Venture Capital. (See Exhibits 2 and 3 for term sheets.) Top Gun was a premier venture capital firm located on Sand Hill Rd in Menlo Park, California that was known for its successful investments in the past and that had recently raised a large new fund. Red Baron was a smaller, more recently established venture capital firm, located several miles away from Top Gun in the town of Palo Alto. There were some obvious differences: Top Gun wanted to do the entire deal, for $4 million. Red Barons proposal was for a $6 million round, of which Red Baron would take half. The valuations also differedTop Gun had a post- money valuation of $9 million, valuing the company at $5 million before the new investment. Red Barons post money valuation was $12 million, implying a value of $6 million before the new investment.

They scanned the terms, and realized that evaluating these offers, and deciding how to proceed, would not be easythis was the first time either of them had been in this position. They would need to consult their attorney, but they wanted to understand the offers in detailthey were selling a substantial part of their business, and were uneasy about agreeing to terms that they did not fully understand.

They began to review the two term sheets, item by item. What were the items they should focus most carefully on? How did the various terms impact their return if the company did well? How were the venture capital term sheets affected by the outstanding convertible notes? What was missing from these term sheets? If they ran into trouble, how would they fare under each of the offers? And how, if at all, should they negotiate these terms?

With only a few days before the term sheets expired, what should they do?

Exhibit 1 Term Sheet: Lagunita Angels

CONVERTIBLE NOTE FINANCING SUMMARY OF TERMS January 25, 2012

This Summary of Terms represents only the current thinking of the parties with respect to certain of the major issues relating to the proposed private offering and does not constitute a legally- binding agreement. This Summary of Terms does not constitute an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted.

Issuer: Universal MobileApps, Inc., a California corporation (the Company)

Type of Security: Convertible notes (the "Notes")

Interest Rate: Annual interest rate of 10% payable at maturity.

Term: All principal, together with accrued and unpaid interest under the Notes, is due and payable one year after the initial issuance of the Notes (the Maturity Date).

Prepayment: The Notes may not be prepaid without the prior written consent of holders of the Notes that hold at least 66 2/3% of the aggregate outstanding principal amount of the Notes.

Automatic Conversion: In the event the Company consummates, prior to the Maturity Date, an equity financing pursuant to which it sells shares of its preferred stock, which are expected to be Series A Preferred Stock (the Preferred Stock), with an aggregate sales price of not less than $2,000,000, including any and all indebtedness that is converted into Preferred Stock (e.g., the Notes), and with the principal purpose of raising capital (a Qualified Financing), then the Notes will automatically convert all principal, together with all accrued and unpaid interest under the Note, into the Preferred Stock and common stock. The conversion price will be a price per share equal to the lesser of (i) 90% of the price per share paid by the other purchasers of the Preferred Stock sold in the Qualified Financing and (ii)an amount obtained by dividing (x) $5,000,000 (the valuation cap) by (y) the Company's fully-diluted pre-money valuation. The total combined number of shares of the Preferred Stock and common stock to be issued upon conversion will equal (x) all principal, together with all accrued and unpaid interest under the Note, divided by (y) the applicable conversion price. Of those shares, the number of preferred shares will equal (x) all principal, together with all accrued and unpaid interest under the Note, divided by (y) the price per share paid by the other investors purchasing the Preferred Stock in the Qualified Financing. The remaining shares will be common stock.

Voluntary conversion: If the Company consummates a preferred stock financing that does not constitute a Qualified Financing, the Notes will be convertible into the preferred stock issued in the financing at a conversion price equal to the price per share paid by the other investors in the financing. If the Company does not consummate a Qualified Financing prior to the Maturity Date, the Notes will be convertible into common stock at a conversion price equal to the lesser of (i)$1.00 per share and (ii)an amount obtained by dividing (x) $5,000,000 (the valuation cap) by (y) the Company's fully- diluted pre-money valuation.

Liquidity events: Upon a change of control or an IPO, the Notes will be convertible into common stock at a conversion price equal to the lesser of (i)$1.00 per share and (ii)an amount obtained by dividing (x) $5,000,000 (the valuation cap) by (y) the Company's fully- diluted pre-money valuation. Upon a change of control or an IPO, the Note holder will have the option to have the Note instead be repaid with a premium equal to 20% of the outstanding principal.

Other: This Summary of Terms is intended as an outline of certain of the material terms of the Notes and does not purport to summarize all of the conditions, covenants, representations, warranties and other provisions that would be contained in definitive documentation for the Notes.

Non-Binding: The undersigned acknowledge that this Aummary of Terms does not constitue a bondong agreement.

This Summary of Terms reflects our mutual intentions as a basis for proceeding toward negotiation of definitive agreements

Exhibit 2 Term Sheet: Top Gun Venture Partners

TOP GUN VENTURE PARTNERS SUMMARY OF PROPOSED TERMS & CONDITIONS SERIES A PREFERRED STOCK

UNIVERSAL MOBILEAPPS, INC.

June 10, 2012

Issuer: Universal MobileApps, Inc. (the "Company").

Total Amount of Financing: $4,000,000

Investors and Amounts: Top Gun Venture Partners ("TGVP"): 4,000,000

Security: Series A Preferred Stock ("Series A Preferred").

Capital Structure: Based upon a $9,000,000 post-moeny valuation

Option Pool: Post-closing the Company shall have a 25% pool available

Price per Share: $1.00 ("Series A Original Issue Price")

FIrst Closing: Anticipated to be on or before May 25, 2012

II. TERMS OF THE SERIES A PREFERRED

Dividends: The holders of the Series A Preferred will be entitled to receive non-cumulative dividends in preference to any dividends on Common Stock, but pari passu with the holders of Series A Preferred Stock and Series B Preferred Stock of the Company (together, the Existing Preferred), at the rate of 8% per annum when, as and if declared by the Companys Board of Directors (Board).

Liquidiation Preference: In the event of any liquidation or winding up of the Company, the holders of Series A Preferred (the Preferred Stock) will be entitled to receive, in preference to the holders of the Common Stock, an amount per share equal to the respective original issue prices for each series Preferred Stock held by such holders, as adjusted for any recapitalization, stock split and the like, plus declared but unpaid dividends (the Preferred Liquidation Preference). After payment in full of the Preferred Liquidation Preference the remaining proceeds shall be distributed to the holders of Common Stock. A consolidation or merger of the Company or sale of equity for other than financing purposes that results in the stockholders owning less than a majority of the voting equity of the surviving company, or sale or other transfer of all or substantially all of the Companys assets or any other voluntary or involuntary dissolution of the Company will be deemed to be liquidation or winding up (a Liquidation Event) for purposes of causing the payment of the liquidation amounts set forth above.

Conversion Features:

(1) Conversion. Initially, Series A Preferred will be convertible to Common Stock at a conversion ratio of one- to-one, subject to adjustment as provided below.

(2) Automatic Conversion. Each series of Preferred Stock shall be automatically converted into Common Stock at its then applicable conversion price: (i) in the event of an underwritten public offering of shares of the Common Stock at an aggregate offering price (prior to underwriting discounts, commissions and expenses) of at least $40,000,000 with a pre-offering valuation of not less than $300,000,000 (Qualifying IPO); or (ii) the date upon which the Company obtains the vote of the majority of Preferred holders to such conversion.

(3) Antidilution Provisions. The conversion price of the Series A Preferred shall be subject to adjustment in the event of any stock split, stock dividend, combination or similar recapitalization or change with respect to the Companys Common Stock. The conversion rate of the Preferred Stock shall be subject to a broad-based weighted average antidilution adjustment in the event of issuance of equity securities at a price less than the then-effective conversion price for each applicable series of Preferred Stock, except for the issuance of securities described below, which shall be known herein as Excluded Securities:

(i) securities issued as a dividend or distribution on Preferred Stock;

(ii) securities issued as stock splits or stock dividends;

(iii) securities issued to employees, directors or consultants pursuant to a plan or agreement or arrangement approved by the Board;

(iv) common stock issued upon exercise or conversion of options and warrants that are outstanding as of the date of this Summary of terms;

(v) securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board including the approval of a majority of the directors elected by the holders of Preferred Stock (the Preferred Directors);

(vi) securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board including the approval of a majority of the Preferred Directors;

(vii) securities issued pursuant to the acquisition of another entity by the Company or pursuant to a joint venture agreement, provided, that such issuances are approved by the approved by the Board including the approval of a majority of the Preferred Directors;

(viii) securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board including the approval of a majority of the Preferred Directors, provided that such instances are for other than primarily equity financing purposes;

(ix) Common Stock issued upon conversion of Series A Preferred.

Voting Rights: The holder of each share of Series A Preferred will have the right to that number of votes equal to the number of shares of Common Stock issuable upon conversion thereof.

Protective Provisions: The consent of the Preferred Majority will be required for any action that:

(i) liquidates, dissolves or wind-ups the Company or is a Liquidation Event;

(ii) amends, alters or repeals any provision of the Certificate of Incorporation or Bylaws of the Company; or engages in any action that would adversely affect the rights, preferences or privileges of the Preferred Stock;

(iii) authorizes or issues any capital stock that is pari passu or senior to any series of Preferred Stock (except for the issuance of the shares of Series A Preferred to be issued pursuant to this Summary of Terms);

(iv) increases or decreases the authorized number of shares of Preferred Stock or Common Stock;

(v) purchases or redeems or pays or declares any dividend or make any distribution on, any shares of capital stock of the Company other than dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and repurchases of stock from individuals who are Company service providers;

(vi) increases the authorized number of shares of Common Stock issuable pursuant to the Companys equity plans;

(vii) authorizes or issues any debt, if the aggregate indebtedness of the Company would exceed $500,000 unless such debt is approved by the Board, including the approval of a majority of the Preferred Directors;

(viii) results in the Company holding capital stock in any subsidiary that is not wholly owned by the Company, or transfers any capital stock of any subsidiary of the Company, or permits any subsidiary to license or otherwise dispose of all or substantially all of the assets of any such subsidiary;

(ix) results in the Company acquiring a material interest in another entity for an amount greater than $500,000 unless such transaction has been approved by the Board including a majority of the Preferred Directors; or

(x) increases or decreases the number of authorized directors on the Board.

In addition to any other vote or consent required herein or by law, the Company shall not without the consent of the holders of at least fifty-one percent (51%) of the then outstanding shares of Series A Preferred:

(i) amend any provision of the Companys Certificate of Incorporation or the Companys Bylaws if such action would alter or change materially and adversely the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred Stock; or

(ii) increase or decrease the number of authorized shares of Series A Preferred.

Pre-emptive Rights: Each holder of at least $1,000,000 of Series A Preferred shall have the right to participate, pari passu with any such rights held by holders of the Existing Preferred, in any future issuance of stock or other equity securities up to that amount equal to such holders pro rata ownership of the outstanding capital stock of the Company. The pre- emptive rights described herein shall terminate upon a Qualifying IPO or a Liquidation.

Seconday Sales: The Company shall have a right of first refusal to repurchase the shares of Common Stock of the Company proposed to be transferred by any holder of Common Stock (except Common Stock issued upon conversion of Preferred Stock), subject to exception for transfers to family members and transfers for estate and tax planning purposes. In the event the Company is unable to, or elects not to, exercise such right of first refusal, the holders of Series A Preferred will have a right of first refusal, subordinate to the Companys right, but pari passu with such right held by holders of the Existing Preferred, to purchase any such shares proposed to be sold at any time prior to the Companys initial public offering of the Common Stock of the Company.

Right of Co-Sale: Holders of Series A Preferred shall have a right of co-sale with respect to shares of Common Stock of the Company proposed to be transferred by any holder of Common Stock (except Common Stock issued upon conversion of Preferred Stock), subject to exception for transfers to family members and transfers for estate and tax planning purposes, pari passu with the co-sale rights held by the Existing Preferred.

Information Rights: For so long as at least 20% of the originally issued Series A Preferred is outstanding, the Company will provide inspection rights as reasonably requested by the holders of

Series A Preferred and will deliver to the holders of Series A Preferred or Common Stock issued upon conversion thereof:

(i) within 120 days after the end of each fiscal year, annual financial statements, audited by a nationally recognized public accountant selected by the Board including the approval of a majority of the Preferred Directors;

(ii) within 30 days after the end of each month and each quarter, monthly and, as applicable quarterly, unaudited financial statements;

(iii) within 30 days before the end of each fiscal year, the financial plan of the Company for the next fiscal year; and

(iv) within 30 days after the end of the fiscal year, a report setting forth all equity and debt holders of the Company.

The information rights described herein shall terminate on a Qualifying IPO.

Registration rights: The holders of Series A Preferred will have registration rights.

No Redemption: None of the Preferred Stock will have redemption rights.

Board of Directors: The board will initially have three (3) members. TGVP shall be entitled to designate one board member, initially Andrew Liekerman. Common shall be entitled to designate 2 board seats, one of which will be CEO of the Company. Any additional board members in the future shall be mutually agreed upon by both TGVP and the Company. The Company shall reimburse all Board members reasonable and actual out of pocket expenses incurred in attending Board meetings.

III. OTHER MATTERS

The Company agrees to pay for all reasonable legal and due diligence fees and expenses of TGVP counsel listed below and consultants up to $30,000 upon the closing.

IV. CONDITIONS TO CLOSING

(1) The Investors shall have completed to their satisfaction all legal, intellectual property, technical, corporate and other due diligence review.

(2) The Company shall have obtained all necessary board of director, shareholder and other legally required approvals.

(3) The parties shall have executed definitive agreements, including a stock purchase agreement, which contains representations and warranties appropriate for an investment of the nature described herein.

V. NO SHOP

Upon reaching agreement on this Summary of Proposed Terms and Conditions, neither the Company nor any of their directors, officers or agents will entertain discussions with any other investor or consider any other investment or acquisition proposals for a period of 30 days without the prior approval of TGVP.

VI. CONFIDENTIALITY

This Summary of Proposed Terms and Conditions and any related correspondence from the Investors are to be held in strict confidence and are not to be disclosed to any party, other than the Companys legal and financial advisors, without the prior approval of TGVP.

VII. EXPIRATION

This Summary of Proposed Terms and Conditions shall expire at 5:00 pm US Pacific Time on June 14, 2012 if not executed by the Company and TGVP by such date.