Reneging on a $10 Million Handshake

SUN MICROSYSTEMS WAS STILL in its infancy when, in 1983, two of its cofounders set out to raise $10 million in funding.1 After considering a number of options, Vinod Khosla and Scott McNealy had decided to pursue financing from a strategic investor, a Fortune 100 company that saw the benefit of getting access to the technology Sun was developing, and for whom the investment size would be nominal.2 Sitting down with the Fortune 100 CEO, Khosla and McNealy reached an agreement: a $10 million investment on a post-money valuation of $100 million.3 The parties shook hands on the deal and agreed to meet the following week in Chicago to finalize the term sheet.

Khosla and McNealy flew ...

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