Rbs and Walnut Cases a&D

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Background Walnut Venture Associates is a small group of angel investors with backgrounds in the software industry. RBS is a small software company that makes billing and enterprise management software specifically targeted at other software companies. RBS and Walnut are deciding whether Walnut should invest in RBS, and then if they are willing, whether RBS finds the terms of the deal satisfactory. This case memo illustrates that the venture capitalists are looking for good managers in a particular industry, while entrepreneurs typically think funding is dependent on having a good idea. It also discusses why or why not RBS and Walnut might be a good fit for each other. What Venture Firms Want Industries not Companies Venture…show more content…
They even go so far as to list personal reference checks for Lane Ford as a deal condition. Further, the investors demonstrate the importance of management by placing “key man insurance” on Bob O’Connor. Low Risk with Potential of High Return A Low Risk Firm Like most venture companies, Walnut is following an initial set of investments in and loans made to RBS by UST. Further, Mid-Atlantic is also interested in investing in the company showing the follow-on effect, and at the last minute, perhaps because of the others, a third firm, EVC, wanted in as well. Aspects of the company itself also reduce the risk of investing. RBS’ sales growth is 65% over previous year. RBS already has a product, they are profitable, and they have been around for several years. The firm is at the right spot in its lifecycle for a capital injection. RBS is ready to grow its sales and marketing as well as its balance sheet. Product development would likely continue with or without this capital, though this development is one of the stated purposes of this financing. A Good Fit Another means of mitigating risk is for Walnut to stick with what they know. They are doing this both through the software industry and through geography. Walnut is in the Boston area, and is looking to fill capital needs in New England. This coincides well with RBS being in Braintree. Further, MA has the second highest concentration of

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