Spotfire: Managing a Multinational Start-up Harvard Case Solution & Analysis

QUESTION 1

Basic Business Model of Spotfire. How do they expect to make money and scale globally?

            In the initial years of operations of the company, the performance of the company had been good. The company had financed its operations with seed financing from Innovations Kapital. Spotfire was one of the leading software companies and the business model of the company was based upon the vision of its key founders. The main purpose of the company’s technology was to provide the innovative solutions to the individual researchers so that they could easily visualize the data in an interactive and more intuitive format.

With these innovative solutions, the researchers are able to identify unusual trends and patterns so that promising leads could be developed quickly and software of Spotfire allow the researchers to mine warehouses of extensive data and identify the problem more quickly. The main challenge for the company over the next twelve months is to establish the company as a strategic partner and scale the operations of the company on a global scale. The company would be established as a strategic partner for all of its client companies.

Under this partnership, Spotfire would form an important part within the processes of the research of the companies. In the initial years of operations of the company, it had made progress by winning small orders, however, as the company had started to grow most of the clients of the company had been converted to large scale use. This was the time when the management of the company got to know that the adoption of the large scale model and the objective of making money was the key to the second round of financing that was about to come and also to the long term viability of the company.

QUESTION 2

Spotfire expects to raise additional capital in December 1998. How much do they think it’s needed? Why?

            The financing that had been raised by the company of about $ 750000 from Innovations Kapital. In return for this financing the venture capital organization had acquired a stake of about 46% in the equity of Spotfire. The first round of financing for the company was completed in the August of 1997 and the company had successfully raised $616486 and $2465966 from Innovations Kapital and Atlas Ventures. Now the company was set for the next round of financing. According to the assumptions and the estimations of Ahlberg, the next round of financing that would be required by the company was dependent upon the headcount of the company.

            If we look at the growth of the headcount then it could be seen that the marketing headcount is the one which would grow significantly with an average growth of 111% over the estimated period of 1998 to 2000. Except the management headcount, all other headcount numbers including the people in administration, sales, customer service and development would be growing rapidly over the course of the business. Furthermore, the company was looking to introduce new products in the market so that the company could increase its customer base and meet the objectives of large scale. Also the company would require external funds to develop its internal infrastructure of the company. Therefore, based on these needs the required external financing under the second round should be around $6 million to $ 8 million.

Spotfire Managing a Multinational Start.up Case Solution

QUESTION 3

Value of the company?

                The valuation of the company has been performed on the basis of two method which are the discounted cash flow method and the multiple comparable method. In order to calculate the value of the company based on the discounted cash flow method, two important assumptions have been made which are the cost of capital and the terminal growth rate of the company. Looking at the financing needs of the company in the future and the past performance of the company based on the common size income statement and the cash flow growth the weighted average cost of capital for the company has been estimated to be around 10% and the terminal growth rate assuming that the second round of financing becomes successful is estimated to be around 2%..........................

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