Case Write-Up for Walnut Venture Associates (a)
Angel investors are wealthy individuals who usually have an entrepreneurial background of their own. These individuals look for an outlet to share, recycle and increase their wealth and expertise by investing in start-ups. The reasons why they invest in start-ups vary. One of these is to put their wealth and experience to use, the other is to fill the void created by VC’s in the investment space of $1million or less. For entrepreneurs Angel investment is an attractive way to raise equity capital. Angels will provide capital up to a couple of million dollars making it an attractive option for a second round financing run where friends and family would probably fall short and the company is not yet attractive for VC’s.
For a Walnut investor there are a several issues that raise questions that must be answered. Some of these questions are about RBS’s market penetration and growth projections. Why will the customer choose to switch to RBS, and how easy is it? The answer to this question would reveal the markets resistance to RBS’s penetration. Is RBS adding real value to the customers that switch? Based on the answers to these questions is the 100% annual sales growth realistic? Is opening local field offices really a good strategy? Can new field offices duplicate the success of the California office which had access to a huge software company market? We can also question assumptions about the competition. What is the barrier of entry for the competition? Does RBS have any proprietary technology? What will it take larger companies or in-house solutions to match RBS’s product? Another question would be how will the $2 million be used? And perhaps one of the most important questions would be why UST is not providing funding at this point?
There are also some exit strategy and valuation questions. Since the business plan points to an acquisition for an exit, is an IPO out of the question? If an IPO market is not there, what are the comparable market
For a Walnut investor there are a several issues that raise questions that must be answered. Some of these questions are about RBS’s market penetration and growth projections. Why will the customer choose to switch to RBS, and how easy is it? The answer to this question would reveal the markets resistance to RBS’s penetration. Is RBS adding real value to the customers that switch? Based on the answers to these questions is the 100% annual sales growth realistic? Is opening local field offices really a good strategy? Can new field offices duplicate the success of the California office which had access to a huge software company market? We can also question assumptions about the competition. What is the barrier of entry for the competition? Does RBS have any proprietary technology? What will it take larger companies or in-house solutions to match RBS’s product? Another question would be how will the $2 million be used? And perhaps one of the most important questions would be why UST is not providing funding at this point?
There are also some exit strategy and valuation questions. Since the business plan points to an acquisition for an exit, is an IPO out of the question? If an IPO market is not there, what are the comparable market