 In fact, a positive perspective on this debate is that the lack of traction and the funding

difficulties facing the startup can allow investors such as WSC to get in at a relatively low valuation,
increasing their ownership in the firm prior to externally observable signals that the startup is doing well.
This allows the investors to buy a potentially undervaluing stock. This point is related to the argument of
sunk costs. Students who are against a bridge round may argue that there is little value in throwing good
money after bad. While this is true, it helps to get students to appreciate a slight nuance to this issue.
Since the startup would go bankrupt without the bridge round of funding, one can think of the $2.5
million investment in the bridge round as buying not just the 10.2% due to the Bridge, but also 18.4%
bought in the previous two rounds of funding. That is, it is worth understanding whether paying $2.5
million for 28.6% of the firm is a worthwhile investment for WSC. Some students and the investment
committee may decide that it is an unwise decision even at that price, but it is worth explicitly
formulating the question in this way, since some may change their mind to being in favor of extending a
bridge round of funding at that “price”.

 Last, but not least, the bridge round allows the current investors to put in a little money to see
whether the firm is doing well, without committing a large amount of money upfront. As seen in TN
Exhibit 2, the decision tree framework can allow students to put implied probabilities of success on each
branch of the tree originating from the Bridge Round. Students can calculate that the unconditional
probability of reaching the Series B round is 21% (49% × 43%), so that raising the full $30 million for the
bridge and Series B would lead to an expected value of $6.75 million. On the other hand, staging and
potentially abandoning the investment after only investing $5 million leads to an expected value of $19.5
million (the current pre-money valuation). The difference in these values, $12.75 million, can be seen as
the value of the abandonment option in the bridge round of funding. This is a valuable option.

Arguments against extending the Bridge Round:

 Those against extending a bridge round of funding will argue that the benefits of the
technology and business model have been overstated and the current difficulties, in the phase when
things are relatively insulated from outside pressure, are a sign of problems ahead, even with potentially
new management team. Skeptics will point to the financing history of A123 systems (Exhibit 8 of the
case) as a way to highlight that the capital requirements of startups in this sector are likely significantly
higher and the step-ups in valuation potentially lower (A123 systems had the same step up in rounds A
and A-1 as Fast Ion, but then had step ups of 1.4 and 1.6) compared to 1.9 and 2.3 projected for Fast Ion.
Since outsiders are putting significant capital this dilution will hurt the ownership of WSC and lower
their IRRs.

 In addition, those looking at Exhibit 5 and Exhibit 6 will argue that the milestones that Fast
Ion is aiming to achieve seem aggressive when compared to the long development cycles in clean tech.
Exhibit 5 projects that the startup can will build a pilot manufacturing plant and start generating revenue
some time in 2013. The fact that Fast Ion has pivoted to the market for electric vehicles means that this
revenue will need to come from risk averse car manufacturers. Even if they do get such a customer in the
next 2 years, customers may delay payment or require Fast Ion to hold significant inventory if they begin
to ramp up production, putting pressure on the capital light business model.

 Related to the points above is the question of whether the issues facing Fast Ion Battery are
being driven in part by bad governance on the part of John Davidson. We know from the case