Aspen Aerogels Case Study

Aspen Aerogels is faced with two principal questions that plague any young company: (1) whom to approach in their fundraising efforts and (2) how much of an investment they should seek. Regarding the first question, as a preliminary matter, it would make sense for Aspen Aerogels to seek additional funds from Rockport Capital. Since Rockport Capital provided Aspen Aerogels with $4MM in May 2001, it stands to reason that Rockport Capital could be willing to invest additional funds. Rockport Capital's incentive to invest additional cash could come from their desire to continue growing the company (if Aspen Aerogels were unable to secure additional funding and were to fail, Rockport Capital would lose everything). Also, Rockport Capital could desire to increase their investment to establish additional control (e.g. to secure board seat(s), rights of first refusal, liquidation preference, etc), and to prevent becoming diluted, assuming their initial Shareholders' Rights Agreement didn't already contain these protective provisions.

Of course, for various reasons, Rockport Capital may not desire to invest additional funds. If Rockport Capital views Aspen Aerogels as a likely failure, they will not want to continue throwing their cash into what may be a black hole. Further, Rockport Capital already has a relatively substantial amount of control over the company. From a review of Exhibit 3, assuming there are currently no additional VC investors (no others are mentioned in the case), Rockport Capital likely received preferred stock in exchange for its initial $4MM investment, and therefore controls at least 13.75% of Aspen Aerogels and possibly more. If Rockport Capital has antidilution provisions in place in its Shareholders' Rights Agreement, it would be able to maintain its ownership percentage without investing additional capital, and therefore wouldn't necessarily be motivated to provide additional cash as a matter of control. However, taking all arguments...