Derma Care Summary 2017 S2 - Venture Capital PDF

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FINS3623(Venture(Capital((

Week(3((

Semester(2(2017(

1.$Evaluate$DermaCare$from$a$Venture$Capital$investment$perspective.$Is$it$potentially$a$good$ investment?$( Pros$ • Large(market(size(($2(bn,(45m(people(in(US)( • Price-insensitive(consumers( • Unique(product(with(obvious(breakthrough( features( • Well(balanced(management(team( • Direct(marketing(channel(

Cons$ • Direct(competition( • FDA(matters( • Marketing(strategy(may(fail( • Questionable(assumptions( • Can(the(company(grow(fast(enough?( • Not(a(traditional(VC(investment( • Exit(strategy(is(unclear( Would&your&answer&change&if&you&were&an&Angel&Investor?& 3.$As$DermaCare,$which$financing$offer$would$you$accept?$Why?$( Band$of$Angels$ • $1.5m(($4.5m(post-money(valuation)( • Less(dilution(of(founder’s(stake( • Less(formal(application(and(terms( • Lack(of(a(formal(investment(model(means( that(these(angels(are(more(receptive(to( “direct(marketing”( • Best(known(angel(group(in(the(US,(very( deep(pockets( o Entrepreneurial(experience( • One(stop(shop?( o Easy(to(access(for(a(second(round( of(funding( • Angels(are(usually(more(flexible(–(e.g.( willing(to(hold(onto(a(cash(generating( business(that(will(pay(dividends( o Funds(are(provided(by(individuals( and(are(unlikely(to(be(accountable( to(other(external(investors(besides( the(angels(themselves( (

Foundation$Capital$ • $4.15m(($7.65m(post-money(valuation)( • More(control(dilution( o Should(DermaCare(founders(care( about(ownership(dilution?( • More(CASH!( • VC(expertise(and(network( • One(of(the(GPs(is(a(close(friend( • Anticipate(a(traditional(VC(exit(strategy(–( IPO(or(private(sale( o VCs(accountable(to(the(fund(and(its( external(investors( (

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3.$Using$the$information$provided$at$the$bottom$of$page$5$of$the$case,$estimate$how$much$cash$investment$will$be$required$for$DermaCare$to$become$a$ self-sustaining$business(

Direct'Marketing'Investment'Expenditure (A) Period 0 1 2 3 4 5 6 7 8 9 10 11

(B)

Beginning%of%Period% Fortnightly%DRTV% Fortnightly%Cash% Sales Investment -50,000% -50,000% -100,000% -200,000% -400,000% -400,000% -400,000% -400,000% -400,000% -400,000% -400,000%

50,000 100,000 200,000 400,000 800,000 880,000 968,000 1,064,800 1,171,280 1,288,408 1,417,249

(%C%)%%%%% End%of%Period%Internal%Cash%%%% Fortnightly%Net%Revenue%%=% 0.7*(B) 0 35,000 70,000 140,000 280,000 560,000 616,000 677,600 745,360 819,896 901,886 992,074

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(D) External%Capital%Required% to%Meet%next%period% investment%%%%%%%%%%%%%%A(n)%-% [D(n-1)] 50,000 15,000 30,000 60,000 120,000 -160,000% -216,000% -277,600% -345,360% -419,896% -501,886% -992,074%

(E)%%%% Cumulative%External% Capital%Required 50,000 65,000 95,000 155,000 275,000

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