ONSET Ventures Harvard Case Solution & Analysis

ONSET Ventures Case Solution 

1. How much money should ONSET Ventures raise for their new ONSET III fund and why? Should they raise more money than they had originally decided upon? How will this affect the Limited Partners? What are the risks?
How much to be raise?

While considering the current situation of the venture capital industry, it is seen that the industry is at its peak. Venture capital investments are yielding high returns, thus the investors are more willing to increase their investment to have more return on their money. Therefore, with these conditions the Venture capital firms have significant potential to raise funds quickly. Moreover, as per the industry statistics, the size of the Venture capital fund has been increased by 40%. In addition to this, investment shave become liquid quickly as well as the return to investors is also increasing.
With all these circumstances, ONSET should raise its investment as soon as possible to take advantage of the current industry situation. Also, as per the historical analysis, it is revealed that the investments made in different companies were low due to the fact that the returns are high and if invested amount washerwoman what was actually invested, then the return would have been higher than actual. Therefore, money should be raised more than what it is actually proposed.
The estimations for $95 million fund raise are also made on an average time for investment when it reaches liquidity, however as per the industry’s conditions the time to liquidity has been extended significantly. Thus, there is a possibility to raise more capital. The company has already received commitment through which it can raise up to $140 million. Therefore,since this is peak time, the company should use these highly positive conditions effectively.
As per the calculation, based on certain assumptions the internal rate of return is calculated which gives a rate of 36%. This rate is more than the minimum of 30%. Therefore,if ONSET acquired such fund and invested it provided that there is investment from other outsider investor, then this will yield a return of $347,343,75 at the assumed rate of 45%.(IRR, n.d)
years cash flow
0 -95000000
1 34734375
2 34734375
3 34734375
4 34734375
5 34734375
6 34734375
7 34734375
8 34734375
9 34734375
10 34734375
11 34734375
12 34734375
IRR 36%

Effects on limited partners

If more money is raised than the actual need, then this will create a problem if opportunities are available to invest them. In addition to this, the partners have the motive of deriving maximum utility out of their funds as they want to invest money only on funds which have the highest return. Thus, with the strategy of the firm, there is a limitation on the fund’s investment, as a result there is a risk that the partners will be unable to invest the extra amount. This is also against the norm and the usual course of business of the partners. There are possibilities that they will be unwilling to invest more money and take up more risk.However, they canstart investing more at the follow-up round and eliminate some other players and external investors.
There were several risks associated with the fund rising, and some of them are:
Uncertainty:The business environment is highly uncertain and thus, there are no accurate tools to confirm that after raising funds there will be feasible opportunities available in which investments will be made. Moreover, it is also uncertain that after the investment, the returns will be as per the expectation. There is high probability of failures of firms at their initial stage, however by the effective strategy of the ONSET Ventures, this risk is less likely to have an effect.
The management of the company should consider the following risk of the investee company before investment in order to analyze the company’s expected loses, profits, growth and return. The risk of the portfolios of the companies is as follows;.............

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