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Finance
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Apr 3, 2024
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CASE REPORT
CASE: “OutReach”
Student Name:
Class/Section:
1.
What are the challenges of valuing an early-stage company?
The new company in the early stage usually has very limited data available such as not
have a financial history to start with. Therefore, it will be a little challenging to predict
the business in the future such as cash flow, and it is not easy to analyze the future
growth or measure any possible risks. A new company may have to face some difficulties
in a few years before running smoothly.
2. In what ways is ORN a typical start-up company? In what ways is it atypical?
ORN is a typical start-up company because the company does not have more than 100
employees, the CEO has many responsibilities and needs a lot of help to run the company. ORN
hopes that the company will help the underserved population access to the wireless internet with
cost effectively.
ORN is atypical way because, the company starts with profitable in the beginning of operation.
The profit comes from indirect sales model, lean operations, and simple product designs.
3. What is the value of the firm under the venture capital method?
As per instructions in the discussion for this case, enter data for two valuations and resulting
percentage stake for Everest Partners. One that tries to get as close as possible to the equity stake
demanded by the investors, and another one where the inputs are closer to the situation of
OutReach.
Everest Partners
Perez’s point of view
Ratio Selected
*
EBITDA/TEV
P/E
Ratio Value
10.125
20.925
Value at Exit
157,850,000
108,660,000
Investor’s Discount Rate
60%
50%
Present Value of Exit
Value
95,262,005.93
199,612,444.44
Equity Stake
31.49%
15.03%
* Enter
if you used the P/E or TEV/EBITDA ratio. Did you use the mean of data given? Median? Mean of subset of
given comparable firms?
4. What is the value of the firm under the discounted cash flow method? Assume that after 2017
cash flows grow at a rate of 5% forever.
Corporate Discount Rate
15.35%
Present Value of Forecasted Period
$166,706,392.31
Terminal Value
$856,840,579.71
Present Value of Terminal Value
$363,742,823.17
Total NPV
$530,449,215.47
Expected NPV
*
$265,224,607.74
Equity Stake
11.31%
*
Equal to Total NPV, adjusted for the probability of success, as given in the case.
5. Is Everest Partners justified in asking for a 30% equity stake?
30% equity stake for 30 million from Everest Partners justification is low or invalid for the
company. The reason for that is Everest shows 31.49% equity stake, but Everest shows
15.03%equity stake. After the calculation, it shows 11.31 % equity stake. Therefore, 30% equity
stake from Everest is not true.
6. What should Pete Perez do?
The negotiations may be tough for Pete. He should present the calculations to Everest in order to
settle the 15% equity stake for $30 million investment, or Pete should find another investor.
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