Funding assessment Individual case study

 

The assignment

Your task is to produce a consultancy report for both Midas Touch Technologies (MMT) and Victoria Capital Investment Ltd (VCI). MMT is considering whether to approach the venture capital firm for funding and VCI is considering whether to invest in MMT. Your report will inform their decisions.

Using the information provide in the pages below, your report should:

Part A – For MMT

Make suggestions about the type of funding that would be most suitable by:

  • Identifying the advantages and disadvantages of approaching the venture

capital firm for the full amount of equity funding. (20 marks)

  • Identifying an alternative funding strategy for MTT, including a discussion

of the advantages and disadvantages. (20 marks)

Part B – For VCI

Make recommendations whether they should invest in the business by

  • Evaluating the market potential of MMT (20 marks)
  • Assessing the financial status and funding demand of MMT (20 marks)

Your recommendations may be based on the information provided, but should also be backed up by evidence taken from academic literature, industry reports, articles, reputable websites etc. Please ensure that you reference your evidence using Harvard style referencing (use Cite Them Right online to check referencing is accurate – available via the Library).

Additional marks
Referencing – 10 marks
English, spelling and grammar – 5 marks Presentation and layout – 5 marks

 

Word limit

The report should be 3000 words (-10%) in length.

 

 

Referencing

Please include references to academic theories discussed during the course. The references in the body of text will be included in the word count, but the references section at the end of the document will not.

The Case

Victoria Capital Investment Ltd (VCI) is a London-based venture capitalist firm, typically investing in early stage technology businesses.

Midas Touch Technology Ltd (MTT) produces high-end smart watches using premium materials and third party software. MTT intend to approach VCI for an investment of £10 million. To date, MTT have developed the product fully. The product has pending worldwide patents and the manufacturing is outsourced to a company in Hong Kong.

MTT is owned by Yixing Han (28) and David Green (39) who met when they worked at a multinational technology organisation. Working together in international accounts management, they identified the growing market for wearable technology. They remained with their employer for the first three months, but left to devote their full attention to MTT after generating a lot of early interest in their first product. The team are currently geographically dispersed, with Yixing based in London and David in Cardiff, Wales.

MTT’s owners have invested £50K, secured a £400K long-term loan from the bank and raised £300K using crowd funding.

In 2015, MTT achieved revenue of £936K in the first year of trading through sales of their flagship product, although the company posted a £674K loss. In 2016, MTT plan to develop a new product, bring manufacturing in house and launch global marketing campaigns. The proposed £10 million investment will be allocated as follows:

  • £4.5M manufacturing plant and tooling costs
  • £3M sales and marketing campaign
  • £2.5M new product development

Market research suggests that global smart watch sales will be £1,740 million in 2015; the industry is expected to grow rapidly to £9,830 million in 2019.

 

MTT produced a 6 year income statement, and a 6 year cash flow statement seen below (Table 1) and (Table 2), note that the 2015 are the actual year end results. They have assumed that they will receive the £10 million investment in January 2016.

 

 

Table 1: Midas Touch Technology Ltd 6 year income statement (£K)
Year 2015 2016 2017 2018 2019 2020
Sales Revenue 936 2,898 7,728 15,456 32,472 62,400
Direct Material Cost Direct Labour Production Overheads Depreciation 634 221 1970 1,725 593 538 0 2,705 1,352 1,030500 5,152 2,640 1,996500 10,148 5,412 4,059500 18,720 10,140 7,540 500
Total Cost Of Sales 1,051 2,857 5,588 10,289 20,119 36,900
Gross Margin (115) 41 2,140 5,167 12,354 25,500
Sales and Admin Costs
Research and Development Costs Other Operating Costs
44 440 35 3,000 2,500 45 1,800 800 200 2,000 900 420 3,000 3,400 740 6,000 4,800 1,150
Operating Profit (634) (5,504) (660) 1,847 5,214 13,550
Finance Cost Corporation Tax 40 40 40 40 361 40 1,035 40 2,702
Profit After Tax (674) (5,544) (700) 1,446 4,139 10,808

 

Table 2: Midas Touch Technology Ltd 6 year cashflow statement (£K)
Year 2015 2016 2017 2018 2019 2020
Operating ActivitiesNet Profit (PAT)

Adjustments for:

Depreciation Working capital

(674)0

(23)

(5,544)0 (700)500 1,446500 4,139500 10,808500
Net cash from operating activit ies (697) (5,544) (200) 1,946 4,639 11,308
Investing Activities Purchase of PPE (Tooling) 0 (4,500)
Net cash from investing activiti es 0 (4,500) 0 0 0 0
Financing ActivitiesBank Loan
Owner Investment
Crowd Funding Investment Venture Capital Investment
400 50 300 10,000
Net cash from financing activiti es 750 10,000 0 0 0 0

 

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