Venture Capital Financing

While Heather Evans has a great idea, there is a significant amount of work to be done before she can get her company off the ground. Heather Evans has been bootstrapping the business so far but desperately wants to take the company to the next level. In order to get the first collection out of the door, she needs to find investors to finance her operations. Subsequently the most important task she is faced with Is reviewing the various financing options that are available and deciding on an option that Is suitable for her specific company at Its current stage.

Concurrently, Heather Evans needs to assemble the key members of the management team to assist In guiding the company through Its Infancy. Fortunately, Heather Evans has a strong network from business school and colleagues from the investment banking and fashion industry which should serve to provide a pool of individuals whom she can select from that share the same vision and passion for her business.

The overall concept of the business is straight forward. Heather Evans’ company plans to offer a “designer” line to fit the life-style of professional women.

However, accomplishing a successful launch of this type of venture is dependent upon several key factors. First and foremost, the potential market that Heather Evans has targeted must be large enough to merit a new business venture and provide opportunity for growth. According to Heather Evans and a recent market study included In the case, these Individuals encompass a fast-grouping group with great purchasing power which are currently undeserved.

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Furthermore, the size of this market segment Is large enough that it will sustain the future growth of Heather Evans’ business.

Another Key Doctor Is ten acceptance AT Heather Evans’ eagles Ana ten Tall product by the market, and a continuous repeat customer base. Market penetration is armament to the success of the business and in establishing a long-lasting brand identity that resonates amongst her customer base. To accomplish this Heather Evans’ business needs a complete marketing strategy so the potential consumer is aware of Heather Evans brand. Only by building relationships with the appropriate retail channels and attaining proper exposure to the potential clients can her product establish itself in the fashion industry.

In addition, it is vital to have a management team that will oversee the company’s operation. These ideal individuals must possess industry experience and proven track records that will assist Heather Evans in building her company. Lastly and most importantly for potential investors is the proper exit strategy. Heather Evans needs to plan for a scenario so the investors can cash in on the investment in a later stage of the venture and realize a competitive return otherwise she will not get the necessary funding needed to get started.

Aside from the factors previously discussed there are few additional considerations to take into account that will impact the success of the business. Since this is a niche market which Heather Evans is proposing to reengineering, there attention that her brand could become synonymous with this area of fashion thus creating significant brand loyalty going forward. Furthermore, there are significant opportunities to expand the product offerings at much lower production costs, since the operating costs are relatively fixed. Moreover, the prospect of the licensing the Heather Evans brand is another sizeable revenue stream.

Finally, a recent PIP of a comparable company obtained a sizeable valuation demonstrating the great potential in the fashion business. On the flip side, fashion design is very subjective. There is no telling how people ill respond to Heather Evans’ first collection. Even if the collection is a hit, there is a concern that the design trends will be copied by other manufactures. Fashion is a very fickle industry and the barriers to entry are fairly low so competition can be fierce even if Heather Evans’ brand is considered first to market.

Then there is the threat from other well-known brands, which could easily pursue this particular market segment if Heather Evans’ company sees some initial success. 2) To date, Heather Evans’ entrepreneurial efforts have shown promise but there have also been some missteps along the way. With a background in the fashion industry and exposure to the business world at Morgan Stanley and Harvard, Heather Evans is well prepared for the challenges of starting a new business.

Unfortunately, Heather Evans also lacks experience and some of her actions are indicative of a first- time entrepreneur with much to learn about starting a company. Heather Evans invests a large portion of time to researching her new venture and formulating a business plan. By sticking too well mapped out schedule and demonstrating a coherent plan of action, Heather Evans has shown she is a well organized, enterprising entrepreneur with a lot resolve to make things happen. Furthermore, her ability to multi-task and still meet deadlines proves she is proactive and more than capable of properly executing her plan.

The fact that while she was in cocoons seen anneal employees, standalone an Outlet Ana manage to contact potential investors instills a lot of confidence in potential investors. However, there are times when one has to wonder if she is overextending herself and the urgency Heather Evans has established to release her product does pose a threat to the potential success of the business. Another key aspect is the fact that Heather Evans has clearly demonstrated an ability to make difficult decisions as evidenced by the firing of Robert Vain and selection of a costlier but more attractive location for her offices.

However, there are times when her snap Judgments and ability to read people backfire such as the Barbara Tarp incident which could have become a substantial problem had Heather Evans not consulted a friend. Once could also question the choice in office locations as preserving cash in a start-up is so integral to the longevity of the firm in the early stages. Going forward, Heather Evans needs to focus less on Arden ; Co. And pay more attention to other financing channels. In addition, she should make a draft of the deal terms for individual investors which should lead to quicker response times and less ambiguity in the financing process.

Lastly, Heather Evans should focus more on establishing a stronger management team and building relationships with fashion buyers and distribution channels as the people aspect is the most essential element to the success of her business. 3) Generally speaking, Heather Evans provides the investor with a well focused, articulate business plan that outlines the general function and purpose of her business. The inclusion of a table of contents along with a summary page provides attention investors with a quick overview of the contents and a basic understanding of Heather Evans’ business.

It should be pointed out that disseminating anything beyond the executive summary should not commence without the receipt of a non- disclosure agreement by each party that reviews the document. Delving into the actual document, one gets a sense that Heather Evans has thoroughly thought out her idea and the market potential for her products. A well defined introduction that serves as the mission statement for the company helps the investor quickly realize the nature of the proposed business and quickly sets the tone or the rest of the document.

Furthermore, the discussion of her experience in the industry and inclusion of a resume to support her claims provides the reader with tangible evidence of her understanding of the market need Heather Evans is proposing to address. The mention of developing the Heather Evans label for licensing potential is important as it demonstrates potential growth for the firm and that Heather Evans has given consideration to the long-term prospects of the company. The marketing section of the proposal is quite detailed and is one of the better prepared sections.

By citing actual figures such as the $5 billion market for the company’s products, Heather Evans does create a clear picture of the firm’s potential. Furthermore she provides a solid follow-up on how the firm plans to serve these individual and the comparison to Liz Collarbone gives the potential investor some familiarity they can associate with Heather Evans’ company. To strengthen her proposal, ten mention AT allotment Tells Ana actual store names would Turner serve to clarify her business approach so investors knew exactly how her business would address the marketplace and the underlying challenges faced.

More details on the skis and information on feasibility of repeat sales and expansion to other industries would also be useful. The operations section was also well presented but needs to be better developed. Heather Evans does a nice Job of creating a timeline for prospective investors and gives a sense of the scalability of the operations as the company moves from design to production. However, the actual details of the process are vague at best and would be instrumental in truly determining Heather Evans’ ability to execute as the company moves from each phase.

One of the glaring weaknesses in the Heather Evans business proposal is the reparation of the included financial data. The biggest issue with the financial is the inclusion of only two years of projections. While the monthly breakdown is useful for determining the seasonality of the business, investors generally prefer to see pro formal financial extending out five years to give a better sense of the business.

Growth, cost and revenue patterns are more easily discernible over a longer time frame and the five year timeline coincides more frequently with investor’s exit strategies. In addition, the assumptions laid out for the investor are important but more detailed explanations would have been helpful. Furthermore, many of the assumptions were listed as flat amounts or static percentages when in fact it would be more reasonable e to conclude that such numbers would change and evolve as her business did.

The fact that the numbers were signed off on by an accounting firm that did not question the lack of five year projections would raise additional questions about the companies she has retained to assist in starting the business. Another issue with the business plan is the discussion of management. With any business, people are the greatest assets so having a strong and experienced management team is essential to the success of any business. Reading through the proposal, one does not get the sense that much thought has gone into involving many other parties to facilitate the launch and success of the company.

While Heather Evans has recruited a talented assistant designer and gives mention of additional hires as the business grows, the reader is left with the sense that Heather Evans is attempting to take on too many of the business responsibilities herself. Although Heather Evans has an impressive resume and no doubt possesses the raw talent and ambition to make her company a success, she lacks experience in many key areas and is spreading herself too thin. One key area is in the actual design of the products themselves.

Many of the world’s most famous and successful fashion designers worked for others for many years to learn their craft. Subsequently, to reassure interested parties that the company will have the talent and staffing resources to break into the industry, more thought needs to go into developing a management team with the knowledge and experience to augment Heather Evans ambitiousness so that the company can realize the goals detailed in the proposal. Lastly, the lack of a strong legal plan the relevancy of some of the documents maintained in the appendices are detrimental to the quality of Heather Evans’ proposal.

Considering the fact that we live in such a litigious society, Heather Evans needs to arrest any Ana all potential Issues Tanat could pose a rills to near company. The mention of a law firm’s name in her executive summary is a nice touch but Heather Evans should have them prepare a more formal document to include in her proposal that outlines any pending or possible future legal issues so that potential investors are aware of every single possible legal risk associated with this business venture.

Also, some of the documents contained in the appendices could be better explained so that their relevancy and usefulness to the investor is more apparent. The inclusion of the names and requirements of some potential investors does not seem to be pertinent nor helpful to Heather Evans’ pursuits so omitting them in future drafts is recommended. Lastly, some additional information on Heather Evans’ designs would provide the investor with confidence that the products have been properly designed and that the business is ready to go forward.

Overall, despite some issues, Heather Evans’ proposal shows promise and monstrance that she has thought through many of the key aspects of her business. Provided a revised draft is more detailed and includes a legal plan, more information on management and better prepared financial projects, this should serve as an informative document for potential investors. 4) There are several financing options available to Heather Evans to secure the necessary funds to launch her company. Arden ; Co. , a New York based private investment bank with an excellent reputation, has already shown considerable interest in Heather Evans’ idea.

Best of all, the person who represents Arden & Co. Anne Smelling, happens to be an ex-colleague, and a personal friend of Heather Evans. It would be a great option for Heather Evans if Arden & Co. Can be involved as the lead investor, as it lends some creditability to the venture and gives her some much needed leverage to bargain with other potential investors. However, after several interactions with Anne Smelling, Heather Evans finds that Anne Smelling isn’t very professional and to date no firm actions have taken place.

In order to keep her options open, Heather Evans has also spoken with a couple other venture capital firms that had indicated some interest in her business. Heather Evans values the opportunity to gain some insight on the valuation of her own company, but at the same time, she is concerned about the bureaucratic decision-making process with those firms and the less favorable terms they are offering compared to other potential private investors. During these conversations, one of them suggests a Joint venture with Helen Neil Fashions, Inc.

It is an intriguing idea, but mainly depends on Helen Nil’s approval. Since so much hinges on one individual’s approval and Heather Evans has discovered that the company lacks the operating management experience she was hoping for, he opportunity is less than ideal. Consequently, Heather Evans also explores opportunities with a number of private investors (ranging from family, friends, classmates and industry connections) including Herbert Greene. Herbert Greene was previously invested in the Liz Collarbone deal and has connections in the industry to various fabric and textile suppliers.

Furthermore, his reputation carries a lot of weight on Seventh Avenue which could also provide some much needed credibility and serve to instill assonance In toner Investors. Although seen Is getting positive Teacake Trot many AT Hess investors, Heather Evans has been struggling to structure a deal that will satisfy all the requirements for each individual investors. Despite her initial difficulties, in order to preserve her ownership stake, going with a group of private investors might be the best option, provided she can structure a deal to meet the demands of this diverse investment group. ) Typical of most first-time entrepreneurs, some of Heather Evans’ expectations are unrealistic and will have to be modified in order to realize her goals. One of the most glaring issues is the actual valuation of her company. Since Liz Collarbone is a decent comparable, given that the lowest discount rate applying to start-up financing is usually 50%, using Liz Collarbone’s PER as Heather Evans’ PER, the present value should be $167,173 x $19/ Thus the required investment of $250,000, accounts for 39. 31% of the total value.

Given the fact that the there are significant differences in the size of companies, growth stages and experience level of management, this approach for Heather Evans firm in this be overly aggressive leading to an overstated valuation. Another area Heather Evans will have to temper her expectations is in the control f the firm. While there is significant risk in investing in such an early stage company, Heather Evans should not have to surrender a controlling interest in the firm, especially if these parties will not add any additional value to the company.

With that said, she does need to revise her equity requirements and will need to be more willing to part with additional ownership to satisfy the requirements of potential investors. Moreover, Heather Evans desire to retain control of her company is reasonable and actually important because it aligns her goals with the future of the rim and keeps her motivated to realize the success of the company. There is also the matter of who retains the rights to the Heather Evans name.

Since fashion is completely dependent on brand name recognition, Heather Evans will have to revise her stance on maintaining control over the licensing of the name. By in large, the name is the greatest asset of the firm and also represents future revenue potential so the company will have to keep the name in the event that Heather Evans decides to leave the firm. Her requirement for license will not be satisfied. Lastly, it is very unreasonable for Heather Evans to expect her company to remain riveter when an PIP represents such a significant and important exit strategy.

When cultivating potential investors Heather Evans needs to provide them with achievable return on their investment within a specific payback period. Removing this option would certainly deter many if not all potential investors as the potential to realize returns on their investment is already limited from the start. 6) As previously discussed, Heather Evans is a little unrealistic in her expectations and short-sighted in terms of structuring the early-stage financial deals necessary to get her company off the ground.

In investing in any deal, there are three important elements, the timeline, risk of the investment and the potential return issued to compensate the investor for the risk. Most importantly, in presenting her business proposal, Heather Evans would be netter to provoke potential Investors Witt a cream Edie telling Tanat offers mole exit opportunities for the investors to realize returns on their investment.

Considering the fact that the company is Just starting, it is better to leave as many options on the table as possible, such as payback period, right to put shares back to company or many promise buy shares from investors when it meets certain profits, even reconsidering to go public in the future. In addition to providing a way out of the investment, Heather Evans needs to build and maintain a company that is capable of generating revenue and retaining value so investors may realize a gain on their investment.

Given the nature of the fashion industry, since the largest part of the company’s value is held in the name itself, the company must retain full ownership over the Heather Evans name. However, to reconcile the Heather’s position, it could be an option to offer Heather a royalty free science for certain years or require the same royalty free license from Heather and pay fixed fee to renew the license after free periods. In providing investors with a suitable return, Heather Evans could be available to forfeit a sizeable ownership stake in her company.

When structuring the financing packages for investors in this current round, Heather Evans may needs to account for future funding rounds and the eventual ownership that will take place. Consequently, while it is not unreasonable that Heather Evans retain a controlling interest in the firm, she does not need to have over 50% of the equity at the beginning. Thus, if investors could seal a deal to promise Heather Evans that she will have the control in the future ownership structure by giving her a “call” to buy back or they will exercise a “put” under a valuation adjustment mechanism, they may get an agreement with Heather Evans.