QUESTION Yes, Art’s should go for the investment opportunity because he is looking at more attractive features as compared to less attractive ones. For instance he had concerns regarding the CEO and his son; in this regard the CEO is willing to step down without any fuss. The CEO is also willing to take on board a person recommended by Valhalla. The company is also doing fine on the old framework of assessing an investment. It has a considerable amount of market and scope for further capturing a significant amount of market share.
Moreover, it has weak competition in its current segment of the market. However, the company is falling short on the management dimension. But the CEO is not denying this fact and is willing to take on board new professionals. Having seen the positive sides of the business Art’s should recommend an investment of 5 million. Since Valhalla is achieving its investment objective of getting a good ROI figure and in this case around 4.6 to 6.1. There is always an opportunity present to further extended their funds into the company, which is evident for Scott Fredrick proposal.
In such a situation there is no need for unnecessary risk. QUESTION # 2: The venture capital firm taking over the management of the company and influencing all operating decisions, this is the biggest and by far the most dangerous threat to the company. The current CEO is well aware of this and is not being able to counter the pressure for the VC funds. Another threat to this business would be from a competitor who comes up with a ground breaking new system that makes TX’s current system lose its worth.
In this current scenario the CEO is rapidly losing his control and authority, his son is also being put in the back seat by preventing him from being the next CEO. The current scenario is leading to a negative and hostile climate in a prospering company. The ground for confrontation is being prepared by the VC funds. QUESTION # 3: The due diligence process came out as a result of inadequate framework or best practices in the VC industry.
Prior to the due diligence process the partners focused on deals having: solid management, less dense competition and sizable market to serve. This framework obviously got exposed when DOT-com bubble burst. Thus the partners came up with a model having the following valued variables: Invest time to learn the intricacies of the business/deal. Work closely with the management of the business. Make use of the expertise which the partners developed in an EAST Coast IT deal. Benefits: Complete understanding of the business. Greater transparency. Greater understanding of company’s (clients) objectives. Nurturing on an air of trust and confidence between the company and the VC fund.
Risk: A cumbersome process. The client going to another VC fund due to the long time taken, thus a low client retention ratio. Based on untested assumptions. QUESTION # 4: It can place a partner on the board of TX. The company can go into this deal with Columbia Capital. Since these two companies had a sound working relationship in the past, there is no reason to exclude their expert opinion in this transaction.