Columbia Case Memo

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Feb 20, 2024

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235 – VC and PE Columbia Case Assignment July 30, 2022 Kyle McKenzie Srinraj Salla Poornachandra Rao What are the pros and cons of raising a fund from the point of view of Columbia’s four original partners? Pros  Raising a fund will have management fees that will help with overhead expenses  Exclusively focus on venture investing with large capital  Make larger investments in individual deals  Provide opportunity and growth for new partners  Global brand recognition Cons  Original partners may have to go forgo a higher share of profits and split the profits among outside investors  May impact the company’s culture and traditional values  Provides less control and autonomy  Moving out of core strength and operational limitations  Foreign market risk  Need more headcounts to manage the growth & expansion What are the pros and cons of raising a fund from the point of view of the firm’s junior partners? Pros  Provides freedom and flexibility for new generation partners to operate independently  Expansion and growth of the company  Provides courage and new ideas with a higher risk appetite  Can tap into the new growth market segments  More exposure and expanded lines of business verticals to balance the risk

235 – VC and PE Columbia Case Assignment July 30, 2022 Cons  Falling into high risk, high reward territory  The global macroeconomy can affect the growth potential  New business and sales partners must be made across different industries If you were a potential limited partner, would you invest in Columbia’s fund? How well has Columbia done, on a quantitative and qualitative basis? Is the claim of a 194% IRR reasonable based on the evidence in Exhibit 1? Yes, I would invest in Columbia’s fund as an LP. Given the current boom in the telecom market and the growth in both domestic and international markets, I would take a high risk and invest in Columbia’s fund. Based on Exhibit 1, the Columbia fund has a 50-50 success ratio. Out of all investments Columbia made in the past 10 years, 48% of Columbia’s investment has yielded 645% returns, 48% of the investment has made no profits yet, and 4% of investments have made negative returns so far. Investing in early-stage companies is a high-risk business since the growth and potential are unlimited on both ends of the success spectrum. The other factors to be considered are, that most of the profits that Columbia made were during the early stages of the firm. So, maybe recently, the competitive landscape has grown and there are more formidable competitors present in the market. 8 out of 13 investments that have no returns yet are made in the recent past 2 years and we cannot come to conclusion with these investments. Also, the negative returns made were only during the years 94 and 95. So, overall Columbia has been a successful fund. But since most of the recent investments are still yet to be profitable and the highly profitable initial investments are during the initial years with a couple of investments generating a huge IRR, the overall IRR of 194% may not be justified. Finally, Columbia has developed great connections in the industry and has gained lots of expertise and knowledge that will enable Columbia partners to make wise decisions. However, Columbia has so far operated as limited and most of the decisions are made based on an individual’s own guts, insights & research. So, to get into as a LP, the rules and norms have to be discussed, outlined, and agreed, upon as per the industry standards. If you were the CEO of a start-up telecommunications company, would you rather take money from Columbia with a fund or without a fund? Given the expertise, knowledge, and skill sets that Columbia brings, I would be tempted to take the money from Columbia. However, I would like to take only a small amount of money from Columbia i.e., without a fund and with more stringent agreements that would clearly distinguish the roles and responsibilities of Columbia.

235 – VC and PE Columbia Case Assignment July 30, 2022 Columbia partners are more entrepreneurial and often write business plans, hire employees, and build the companies themselves from the ground up. Being a CEO of a start-up company and going to Columbia for a fund may not be a good idea since Columbia operated differently from a traditional venture capitalist that incubates entrepreneurs. I would have to sacrifice autonomy and completely rely on Columbia for all decision-making. Secondly, the reason for taking only a small fund is because Columbia has never done a large- scale investment and has never showcased its potential in handling the risk and behavior of large capital investments. Columbia is a tightly integrated quasi-venture capital firm that operates on its norms and procedures. Raising outside funds and the ability to handle the business expectation with limited partners and operating efficiently to maximize returns for a start-up company is a high-risk high-reward business and there is no history for Columbia in doing this. However, Columbia has achieved a lot of success by identifying and investing in good early- stage telecom companies which later went to IPO and became highly profitable. As a CEO of a start-up telecom company, if my growth plans are to go IPO or to get acquired and become a market leader, Columbia is a great company to get the fund.

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