3. Questions
For your activity submission, you need to create a comprehensive investment recommendation. This requires you to consolidate what you have learnt throughout this programme.
Choose one of the case studies – UnBlockAfrica or DrAIve – and answer the questions that follow. Use all the information that you have learnt about the case studies by referring to the PowerPoint slides, Excel spreadsheets, and answers to your previous submissions to formulate your answers in this activity submission.
Question 1
Question 1.1
Using all the information about the case study you have chosen, recommend whether you think this would be a good investment and provide reasons for your choice. Ensure that you assess and suggest the risks that would be involved were you to invest in this venture. Make sure that you cover the following types of risk:
Market
Business model
Team
Finance
(Write 200–250 words)
Start writing here:
Market
It would be a good to provide the affordable and easy to access banking solutions and services to the 50 % of the South Africa citizens. Indeed it would be a good move but at the end it may be followed by negative impacts. This is because the population that doesn’t have any access banking services may have resulted to this due to a number of reasons. To start with, the people with no banking details may have avoided looking for the services due to lack of formal employment that would require them to have the bank details for their benefits and compensation payments. The other thing that would have led to high number of people not securing banking services would have been due to being comfortable with the old methods of banking due to fears of online hacking of bank details that have been experienced in future leading to loosing of money.
Business model
Advertising through the social media for the use of the mobile application to access banking services would not reach the potential clients well but use of physical campaigns to raise awareness of the mobile application would be better. The other way that would work best is by collaboration with the leading financial institutions so that the mobile application app services can be introduced there. It may be introduced once the customer visits each of the branches or through clicking on his/her banking website for services. This would build more confidence to potential customers. The business model would be successful if the mobile application would gain a lot of clients. This follows the acceptance of the brand in the market before the exit of the company.
Team
Throughout the establishment of the exit plan by the business, it would require at least the company to employ some external services to explore the market in details. This research conducted by professionals would enable the company conduct an accurate valuation while planning for exit. The services of the professionals would help at the time of research and evaluation of the business to ensure that the outgoing owner of the business gets a good return on his investment.
Finance
This would not be a project worth the investment. This is because, the population targeted may be having a lot of reasons why they are not securing those banking services. The owner of the business through the services of the professionals will be able to get an accurate amount that will be expected at the end of the investment. It would be at least good to focus on the working population in formal sectors who may be having knowledge of the importance of such banking services (Ferreira, 2016).The focus should be on the major institutions that provide services to The team involved may be the best in steering the awareness of provision of banking services but the targeted population may be the problem.
Question 1.2
Based on the work you have done in the previous modules (especially those focusing on DrAIve and UnBlockAfrica), and referring back to the investment memorandum you made in Module 5 Unit 3, your final assignment is to develop an exit strategy for your chosen company.
Assuming that the company does not fail what would its exit path look like? Showing your calculations, determine the exit value the company could achieve, and the returns to both the investors and entrepreneurs. In answering this question, draw on what you’ve learnt about valuations, deal structures, and exits
(Write 500 words)
Start writing here:
The exit of the company would start with the stakeholders of the company putting focus on all the possibilities (Waddell, 2017). This is to avoid a lot of spending and waste of time in the course of the investment. The business should establish what they have so far achieved while planning for their exit route and also assess if the business can now exist with them. This is in considering both the advantages and disadvantages that comes from the exit of the business from the initial owners. It’s important that the business spends money on other resources on an exit path that is best for them (Blank, 2020). One of the best exit path the company would use in regard to the services that its providing would be selling its services to a third party. This third party now will essentially mean the banks that will have a consensus with the service provider to transfer all the rights for the mobile app application to be used in their bank for their customers. None the less this would essentially mean it shall be possible if the initial campaign on the mobile banking app was done well and accepted by the targeted customers. It would also be imperative determining the best path for you that would be able to meet all the requirements right from the foundation of the investment (Merker, 2019).This would comprise the below;
- How much funds do you need after the company sells the services to the banking institutions?
- When does the company want to exit?
- Who in particular does the company want to be succeeded with in ownership?
Those are just some of the questions a company will need to ask before it finds its best path of exit from the market. In addition, it would also be required to understand if it needs to maintain its legacy, culture or even rendering the benefits to the society.
From the exit paths of the company and businesses, I have learnt that its wise for the business planning exit should at least have professional who will perform some cash flow projections that will determine the sufficient money that’s available to even contemplate a third party purchaser. I have also noted that pre and post money/ funds valuations cannot be analysed while in isolation during the analysis of financial merits for the valuation proposed. There are other important factors that have proved to be important in valuation such as liquidation, dividends and preferences that in most times determine of the exit is really a good deal.
The business would use the below pre money valuation that would help in determining the amount in percentage that was invested by the owner. From the earlier compiled report over the years, it has shown some several investments not worth the investment. The valuation would require financial reports and thus this would make it not worth for evaluation any further. Based on the analysis of the Unblock Africa financial statements, its exit value would be R66, 827, 619 after a period of at least 5 years. A south African bank wants to invest in the business with at least R 2.8Milllion.
| Projected cash flows and terminal value | ||||||||
| UnblockAfrica has below projected cash flows for the next five years: | ||||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||
| -R1,004,190 | -R1,137,532 | -R882,169 | R10,870,647 | R19,305,113 | ||||
| After the period of 5 years, the company terminal value would be calculated as R54,677,143. |
References and sources of information
Blank, S. (2020). The startup owner’s manual: The step-by-step guide for building a great company. John Wiley & Sons.
Ferreira, S., & Morgado, P. (2016). O marketing relacional na banca: o papel do Home Banking na criação de valor para o cliente.
Merker, C. K., & Peck, S. W. (2019). The Trustee Governance Guide: The Five Imperatives of 21st Century Investing. Springer.
Waddell, S. (2017). Societal learning and change: How governments, business and civil society are creating solutions to complex multi-stakeholder problems. Routledge.
