Walnut Venture Associates Case Study

Business angels usually invest in companies around their home so they can check up on their investments.

Moreover, Robert Gates’ estimation of the price increase (2.0%) differs from the information provided in the case (1.7%). This overestimates revenue and thereby FCF. To make better projections for the firms’ FCF, Robert Gates would also have to consider the opportunity cost of alternative investments, the risk exposure throughout the project and operational risks after three years.

Capital can come from state and corporate pension funds, public and private endowments and personal investors

Putting down, $2,300 million at year 0, with zero NPV (cash flows) until payout at year 5, the calculated IRR for investors is: 21.13%. This IRR is more than the targeted IRR of 20% that Carlyse expected. Thus, would make this LBO an ideal target.

DO YOU AGREE WITH MR. WILSON 'S ESTIMATE OF THE COMPANY 'S LOAN REQUIREMENTS? HOW MUCH WILL HE NEED TO FINANCE THE EXPECTED EXPANSION IN SALES TO $ 5.5 MILLION IN 2006 AND TO TAKE ALL TRADE DISCOUNTS?

Q&A: Based on the material covered in this chapter what questions would you ask the firm’s founders before making your funding decision? What answers would satisfy you?

6. If I were Goodson, I will absolutely reject the offer from Trio LLC. Regardless of all other factors, $1.4 million Series A funding is far below the operation and research cost. Although suffering the Internet Bubble, the market condition is still flourished in 2000. The average amount investment of deal is $13.9 million in that year. Following increasing numbers of companies are considering the E-security, there are more opportunities expanded to SecureNet. Also, finding a more experience venture capitalists can increase the operation efficiency and get more stable investment in continuous rounds. Last

The first proposal was from Electra Networks. They aim to deliver phone services through the internet or VOIP. The company has projected a large market segment but the market is now saturated. They were able to raise capital through three rounds of financial funding. The company’s previous valuation was $125 Million but the current valuation was not presented. Also they have power house management team which has strategic alliances with other companies on the industry. Currently, they are anticipating for IPO.

2. Analyze Structured Navigation. Is this a valid measurement of progress in early stage investing? Could such a program ever be a hindrance to company development?

If Lars decides to invest around $6 million more in research and development, it is highly risky as the company’s survival depends largely on the success of the launch of Ray’s new product into the market.

Angel Investors - The main business angels vary from venture capitalists in their motives and level of involvement. Often angels are more involved in the business, providing ongoing mentorship and advice based on experience in a particular industry. For that reason, matching angels and owners is critical. There are substantial easily locatable networks of angels. Pitching to them is no less demanding than to a venture capitalist as they still review hundreds of proposals and accept only a handful. Often the demands around exit strategies are different for an angel and they are satisfied with a slightly longer term investment (say 5-7 years compared to 3-4 for a venture capitalist).

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.

After year 5, they cash flow will pick up where it left off and increase even higher until they sell the company. The IRR will be around 429%. And the value created from the small investment will be just under $45 million in only a 7 year period.

Angel investors are those investors that are particularly interested in investing in companies early stage companies. Their investment capital is generally limited and if relevant, it has been advantageous for them to pool their funds as a group to not only participate in larger deals but also to diversify risk. They invest in exchange for ownership equity or convertible debt.

investors exist for larger amounts of capital such as VC funds and banks, entrepreneurial initiatives that require much smaller amounts to start with need to rely on friends and family or own savings. They then also make extensive use of bootstrapping techniques to mitigate their financial constraints, by boosting their short-term profits.