Walnut Venture Associates (D) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Walnut Venture Associates (D) Case Solution

Introduction

This case is based on Bob O’Connor, who is the owner of RBS Group, a software-based company. The company is running well and the customer satisfaction level is also good, but the CEO has realized that there are inadequate funds for the firm. He intends to acquire the funds from the equity and issuing shares for it. The company was running short of 2 million, out of which 0.6 million are acquired by Bob’s commitment and remaining1.4 million is yet is to be raised. The RBS group of companies are providing funds against stocks on the same price by Mid-Atlantic Venture Fund, and 1.4 million could be covered by it, as described in the case’ term sheet. The issue has occured when the company gotan offer of 2.5 million by EVC against the stocks, and realized its tendency to acquire higher funds than to the requirements,but the owner believes that taking 0.5 million more than the required amount can create a low valuation in the company. The problem statement is that the company is facing a delimma in whether it should acquire the fund or not, and what would be the best decision for the organization.

A)

Post-Money and Pre money Valuation

The pre-money evaluation describes the total shares in the market and the market capitalization before acquiring the funds. The pre-money valuation is 146.5; whereas,post money evaluation is calculated by acquiring funds and by issuance of shares. The outstanding shares before and after the funds, are showing the total shares of 165056 in the market and post-money valuation is 107.77, which is < 146.5931.See Exhibit 1

B)

The post-money evaluation table changes after the addition of 0.5 million access to the funds. The total shares outstanding will change to 17706 in A-class and to 161688 in B class. The company has 48% of the total management reserved shares; where 31% of founders, 3% of reserves shares granted and 14% of reserved shares, are available. The market capitalization becomes 2250000 for A-class and 250000 for B class. The pre-money valuation is 146.59 and after the investment of 2.5 million; it would become 101.94 in the post-money valuation.See Exhibit 2

The owner: Bob, is not happy with the excess of 0.5 million extra, because he believes that the monetary valuation of the firm would decrease,which would result in the decline of the company’s net worth..........................

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Walnut Venture Associates (D) Harvard Case Solution & Analysis