Venture Capital Assignment

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Venture Capital
Assignment

Instructions:
This assignment is divided into 3 parts – A, B and C. Please answer all
questions in each part.

There is a total
of 100 points available.

The total word
limit for this assignment is 12 typed pages with 1.5 line spacing and 11 point
font size. The

word limit will
be strictly enforced. Handwritten responses will not be accepted.

Part A – HungryPaws [40 points]

Linda is an
entrepreneur who started HungryPaws, an online pet food retailer, in early
2013. HungryPaws sources dog and cat food products from 4 major manufacturers
which she stores in her warehouse in Melbourne, Australia. When a customer
places an order online, Linda ships the product from the HungryPaws warehouse
to the customer’s home through a third party courier network. You are working
for Kangaroo Kapital, an Australian VC firm, and you have been approached by
Linda who is seeking series A VC funding. Until now Linda has invested $200,000
in the business from family and friends. Linda is prepared to offer you 10,000
shares in HungryPaws for $1 million in VC funding. There are currently 22,000
shares on issue.

1. Calculate the pre-money
valuation and post-money valuation for HungryPaws. What percentage ownership
will Kanagaroo Kapital gain in the company? [10 points]

2. Since the business
started, Linda has taken HungryPaws through many business model iterations,
starting the business as a social network for dog owners, then changing the
company into a service for making astrological predictions for pets and their
owners, and finally settling upon a pet food retail website. Since it started
selling pet food last month, HungryPaws has had 17 orders for pet food. Has the
business reached product / market fit? What should Linda’s priorities be at
this stage of the company’s development and why? [10 points]

3. This is Linda’s first
startup venture since leaving a well-paid marketing position at a major pet
food manufacturer. Although she has no prior experience with online startups,
she has employed a skilled software developer as head of technology and a
qualified financial controller to run the company’s accounts. Is this a good
founder and team for Kangaroo Kapital to invest alongside? Why or why not? Are
there any vital skills missing in the team? [10 points]

4. Comparable businesses
have been sold on a valuation of 2x annual revenue. How much revenue will
HungryPaws need to generate in order to give Kangaroo Kapital a 5x return on
its investment? [5 points]

5. Overall, is HungryPaws
an attractive investment for Kangaroo Kapital? [5 points]

Part B – Facegraph [20 points]

Imagine that you
receive a call from a friend in the USA who is seeking VC funding for a new
business called Facegraph. Facegraph sees itself as the “next big thing” in
social networking that has the potential to replace Facebook as the market
leader. Its business model is based on the idea that people are fed up with the
increasing amounts of advertising on Facebook, and will switch over to
Facegraph if they can have an ad-free experience. Although Facegraph will
initially be offered to users for free, the company believes that over time it
can introduce subscription fees of $1 per user per year. Based on the topics
discussed in the lectures, do you think Facegraph would make a good VC
investment? Why or why not? [20 points]

Part C – Menulog [40 points]

Consider the
Australian company Menulog (www.menulog.com.au).

1. Briefly describe the
market in which Menulog is competing. Do you think this is a high growth
market? Why or why not? [10 points]

2. Analyse the threat of
new entrants into this market. How high is this threat? [10 points]

3. What would you see as
Menulog’s customer segments and what value proposition does Menulog provide to
them? [10 points]

4. Is this a two-sided
market? If so, describe the two sides. Are there strong network effects present
in this business model? If so, describe the network effects that you see. If
not, state why not. [10 points]

Note: Under no
circumstances should you contact anyone who works at Menulog.

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