Lect 2 VCR Opportunity Bulletins

Business Angel Investing:Evaluating Opportunities: 

Business Angel Investing: Evaluating Opportunities Dr Peter Kelly Helsinki School of Creative Entrepreneurship & Helsinki University of Technology

Unique Slimming Programme: 

Unique Slimming Programme £200.000 for 15% equity stake Implied valuation = £200k / .15 = £1.33 million Product aimed at self-improvement / self-motivation market Combines writing talents of Judith Verity and motivational talents of Pete Cohen Investment needed to build the business (fitness chains) and develop franchising model

Organization Structure: 

Organization Structure 200.000 for 15% of HRCL dilutes stakes of remaining shareholders who control 85% of company post investment: for example, Verity family stake reduces from 72% to 61% (72% of 85%)

Investment Merits: 

Investment Merits an enormous (parden the pun) market slimming market is £5 billion in UK, $50 billion in USA readily identifiable ways to broaden the product offering geographically (USA, Australia, New Zealand, Canada) breadth (diet, stress management, anger management, etc) multiple revenue sources book sales, seminars, franchising fees revenue generating products in market now in-house database of contacts (2400 names) substantial cash (£160k) and sweat equity commitment

Investment Merits: 

Investment Merits An experienced team that seems to work well together and complement one another John Verity (£100.000): ”the business man” Judith Verity: ”the author” Ian Pearce: ”the event manager” Andrew Green (£60.000): ”the number cruncher” Sally Gunnell: ”the fitness face” Pete Cohen: ”the entertainer”

Issues To Be Investigated: 

Issues To Be Investigated Numerous web sites were mentioned, these would be thoroughly checked Trademark registration paperwork scrutinized Separate and team discussions with Judith and Pete particularly (assess personal chemistry) Full disclosure of agreements with Pete Cohen and discussion re: his ongoing commitment to business Discussion with Sally Gunnell to understand her concrete contributions to business (personal plan)

Issues To Be Investigated: 

Issues To Be Investigated Limited financial information is presented, I need to see audited financial statements as mentioned in release Use of funds to be scrutinized, in particular £120k of new money raised appear to be used to pay salaries Want a detailed month by month analysis of cash flow together with projections Want to attend one of the upcoming sessions to get a real feel for the product offering Full and detailed discussion re: franchising plans and the fitness and health club market opportunity

Investor Requirements: 

Investor Requirements Money will be invested primarily in redeemable preference share instruments Investor will be given a seat on the board Monthly financial reports Key man life insurance on Peter Cohen and Judith Verity Ideally Pete Cohen’s shareholding in Lighten Up Limited to be converted into HCRL shares thereby increasing his equity stake in business This is an opportunity ideally suited to an investor with franchising experience (no one has this in team)

Mobile Productivity: 

Mobile Productivity £400.000 for 25% equity stake Implied valuation = £400k / .25 = £1.6 million Products aimed at ”road warriors” MP Knowledge: support tool MP Service: scheduling tool Founding team are all engineers Investment needed for marketing/development of existing products + support infrastructure

Investment Merits: 

Investment Merits an enormous ”m”arket (mobile) Durlacher estimates market to grow to €3,8 billion in 4 years two existing products with reference clients intuitive platforms to grow business consulting offers additional revenue raised £120k already and Chairman has both new venture and sector experience clear pricing schedule that affords healthy gross margins MPK (85%+) MPS (60%+) 5000 clients (at least) fit the ”target profile” in UK

Investment Merits: 

Investment Merits An experienced team of engineers ... Gareth Pugh (CEO) Oxford engineer Insead MBA AEA Techology progressively senior posts client management (400) business unit management (30 staff) Andrew Madden (CTO) and Tom Jones (COO) have worked together before at Sage Tetra

Investment Merits: 

Investment Merits Investors already on board ... Allen Jones (£100.000) Founder and Chairman of Copernicus Software Industry contacts Oxford graduate (referral) Simon Aspinall (£20.000) Kickstart Ventures knew Gareth from Oxford and Insead provided business development experience

Issues To Be Investigated: 

Issues To Be Investigated Web site that is listed to be thoroughly checked Reference clients to be contacted directly Management to be interviewed separately & together Review partner documents and get a full briefing on status of negotiations with Vodafone and BT Cellnet Review investment agreements and have separate meetings with Allen Jones and Simon Aspinall Check to see whether pricing formula has been customer validated

Issues To Be Investigated: 

Issues To Be Investigated Are the projected figures presented in Table D realistic for talent required What were the deposits (£50.000) required for as stated in Table F Underlying assumptions regarding work load for sales people and channel managers from Table B Determining an appropriate growth trajectory? What is my money being spent on? Determining whether Alan, Tom & Ian Jones are related

Installed Base Growth: 

Installed Base Growth

Investor Requirements: 

Investor Requirements Investor will be given a seat on the board Monthly financial reports Probably insist on veto rights as there are other investor shareholders Ideally want investors who have worked in or are well connected into cellular operator market Clear understanding on when additional funding will be raised and what magnitude

Compact Pyrolysis Disposal Products: 

Compact Pyrolysis Disposal Products £410.000 for 35% equity stake in Newco Implied valuation = £410k / .35 = £1.2 million Products to treat ”clinical waste” in situ through use of pyrolysis (burninig waste in vacuum) During past 10 years, company has conducted market research, produced prototypes, secured patents Investment needed to develop further prototypes, secure partnerships, strengthen IPR protection Morgan Automation provides management and support with IPR rights embedded in Newco

Investment Merits: 

Investment Merits highly visible BIG problem NHS creates 190k tonnes of clinical waste per year alone More than 400k tonnes of clinical waste produced and growing Governments considering legislation existing incinerator based solution inadequate many potential applications of patented technology cruise ships, airplanes, trains, buses female hygiene products, medical waste, diaper disposal demonstration unit has been produced on a nuclear sub

Investment Merits: 

Investment Merits An experienced team that works well together and complement one another Howard Clarke (60): ”the inventor” Sue Clarke (53): ”the business woman” Sandy McCombine (58): ”the development guy” Martin Robinson (39): ”the engineer and pyrolysis expert”

The Organization: 

The Organization Morgan Automation Limited will hold 65% of equity in Newco (a company to be incorporated) Shareholdings in Morgan Automation are not disclosed nor do we know how it is capitalized Morgan Automation will in turn sign over the intellectual property rights to Newco (the investment vehicle)

Issues To Be Investigated: 

Issues To Be Investigated Need to review all the financial documentation of Morgan Automation Limited Reference clients to be contacted directly Management to be interviewed separately & together Patent protection reviewed by a lawyer Letter of intent with cruise ship line will need to be followed up with a meeting Strategic partner status will need to be reviewed and discussion initiated re: in-house sales force Check up on Robinson’s pyrolysis expertise

Investor Requirements: 

Investor Requirements Money will be invested primarily in redeemable preference share instruments Board seat + monthly financials Key man life insurance coverage for all key employees Explicit contract governing relationship between Morgan Automation and Newco Explicit personal contract with Howard (inventor) Non-compete agreements to provided by Howard, Sue, and Martin Clear assignment of all present + future IPR to Newco

Investor Requirements: 

Investor Requirements Ideally the company should be looking for an investor(s) with the following attributes first hand knowledge of NHS previous experience developing strategic partnerships previous experience working in one of the target markets experience competing in regulated industries and dealing with regulatory authorities knows how to grow a science based business someone who may have an interest in taking on role of CEO

Advanced Business Computer (hand-in): 

Advanced Business Computer (hand-in) 1 page maximum bullet points Why has the bank refused to increase the company’s overdraft? Assuming ABC needs an equity infusion of £1 million, what value would you place on the business as an investor? What equity stake would you need?