Accept Peter Gregory Seed Funding

Setting

After winning TechCrunch Disrupt with the middle-out compression algorithm demo, Pied Piper received significant investor interest. Peter Gregory of Raviga Capital offered $200,000 for 5% equity, valuing the company at $4M. However, Gavin Belson from Hooli simultaneously offered $10M to acquire the company outright. Richard must decide between maintaining independence with seed funding or selling to Hooli.

The stakes are enormous: accept Hooli's offer and Richard becomes wealthy but loses control of his algorithm. Accept Peter Gregory's offer and maintain independence but face an uncertain future competing against Hooli's vast resources. Time pressure is extreme - both offers expire within 24 hours.

People

• Responsible: Richard Hendricks (CEO, algorithm creator)
• Approvers: Erlich Bachman (incubator owner, 10% equity holder)
• Consulted: Big Head (friend at Hooli), Jared Dunn (potential employee)
• Informed: Dinesh Chugtai, Bertram Gilfoyle (potential co-founders)

Alternatives

Option A: Accept Hooli Acquisition ($10M)

Pros:

• Immediate financial security for Richard ($10M)
• Access to Hooli's massive resources and infrastructure
• No fundraising pressure or startup risk
• Guaranteed salary and benefits

Cons:

• Complete loss of control over middle-out algorithm
• Would work under Gavin Belson's direction
• Algorithm likely buried in Hooli bureaucracy (Nucleus team)
• Erlich and others get nothing

Option B: Accept Peter Gregory Seed Funding ($200K for 5%)

Pros:

• Maintains founder control and independence
• $4M valuation recognizes algorithm's potential
• Peter Gregory's mentorship and network access
• Ability to build team and culture from scratch

Cons:

• Significantly less money upfront
• Must compete against Hooli with limited resources
• High risk of failure as independent startup
• Peter Gregory known for eccentric behavior

Option C: Reject Both, Bootstrap

Pros:

• Maximum equity retention
• Complete independence
• No investor pressure

Cons:

• No capital to hire team or scale
• Hooli could reverse-engineer or litigate
• Living in Erlich's incubator indefinitely
• Algorithm could become obsolete while bootstrapping

Decision

Chosen: Option B - Accept Peter Gregory Seed Funding

Rationale: Richard chose independence over immediate wealth. The deciding factors were:

1. Algorithm integrity: Richard believed Hooli would ruin middle-out by forcing it into their bloated Nucleus project
2. Vision alignment: Peter Gregory understood the technology's potential and offered mentorship without micromanagement
3. Team consideration: Accepting Peter's offer allowed bringing on Dinesh, Gilfoyle, and Jared as founding team members
4. Long-term upside: $4M seed valuation with potential for much larger Series A if successful

The infamous "Burger King" meeting where Peter Gregory was more interested in sesame seeds than the pitch nearly derailed the deal, but ultimately Peter recognized the algorithm's transformative potential.

Consequences

Positive

• +Pied Piper maintains independence and founder control
• +Team assembled: Gilfoyle, Dinesh, Jared join as early employees
• +Able to pivot business model (B2C music app → B2B infrastructure)
• +Eventually achieved much higher valuations than Hooli's initial offer

Negative

• −Constant funding pressure and runway concerns
• −Direct competition with Hooli's Nucleus project
• −Peter Gregory's death (Season 1) created investor uncertainty
• −Relationship with Hooli became adversarial (lawsuits, corporate espionage)

Follow-up Actions

• Sign term sheet with Raviga Capital
• Notify Gavin Belson of rejection
• Begin hiring process for engineering team
• File patent applications for middle-out algorithm
• Move operations to Erlich's incubator full-time