I met with Barry Pâquet and I was very impressed and amazed by his story of how he started up his company. He was working as a consultant for another software company and eventually, he had a great opportunity to come up with a product that was superior from the one his client was using. Then, from that one sales, he built his portfolio of clients and making money.

I always like to listen to how people become entrepreneurs and in my experience, most people became entrepreneurs serendipitously.

His company, Quantum Whisper, offers a nifty solution for product development teams scrambling around coding and user feedback. I used to funnel users feedback to the product team and I knew how messy things can get. From the product team perspective, the challenge is to link the user feedback to the specific code or feature in a solid way. Most of us just uses a kind of spreadsheet or paper to take notes between the bug and the code related to it. However, if the project gets too big, the paper or spreadsheet solution can become very overwhelming.

The solution he has is  a platform that links users feedback directly into the development side, so no programmer nor product manager has to do the dirty work of linking those two things every time. This is a great value proposition and I bet it is going to grow a lot.

Kwedit is a strange name for a payment company. This is a startup that offers a new form of payment to social and interactive games that allows people to buy virtual goods. The strange thing is that it allows people to “promise” to pay for a virtual good and the user can pay the promise later with a bar code in a 7eleven store.

Even though this seems to be a great innovation, the idea of printing a bar code and pay it in a retail store is nothing new to date. The strong differentiator of Kwedit is the idea of promising to pay later. I wonder what would happen if everybody promises to pay but none of the actually pays anything. I believe that the CFO of the company would be scare of the increase in the account payable of the balance sheet.

This type of payment for virtual goods reminded me of Habbo Hotel. Habbo is a Finnish company that started its virtual goods operations before the internet boom. It is probably the first company to have a business model based on selling virtual goodies to users. Interesting enough, Habbo targeted in a very narrow market segment. Its targets on teenagers that love to chat in pixel-lated environment.

Habbo and its many forms of payments.

Habbo offers 7eleven payments too. OK, they sell pre-paid cards and Kwedit doesn’t.

In my humble opinion, Sulake could have grown much more if it had focused on the virtual good market as a whole market instead of just that niche teenager segment. It could have created a strategic plan of reaching all types of games and services based on virtual goods. Well, other companies grew upon this model and they are newer than Habbo. C’est tant pis.

TiE Young Entrepreneurs

I love this competition. It is one of the firsts business competition towards students from 9-12. This business plan is hosted by Carolinas – The Global Network of Entrepreneurs and the award for the winning team is USD 10K.

It is important to foster this type of competitions to children and teens. They will be able to learn and train their guts about the process of creating a new business.

For more information check it here.

Invest Now! - from Flickr

My last post from the Entrepreneurial Finance course is here.

Today, I want to share my summary of the Horizon Communications Corporation (A) case study.

This document basically shows the industry background of telecommunication in the 90′s. Basically, it highlights the Telecommunications Act of 1996 and how it changed the market.

With the Act, there was a new market opportunity for companies to provide transmission facility to customers. Basically, there was an opportunity for new companies to serve as a hub connecting a telecommunication facility for big clients to other local telecom providers and to long distance providers.

Along the case, it explains the who the founders are, what the Horizon’s operating strategy is and what the product and service are.

The case presents a serious of challenging questions to the Horizon’s management. It wants to students to think what amount of financing should they ask for and which venture capital firms they should approach.

Again, this case presents challenging questions for VCs and entrepreneurs.

Assignment from MIT OpenCourseWare:

Horizon Communications

1.Would you have started this company? Would you invest in this company? Why or why not? What do you think of the economics of the idea? Of the management team? How does this investment differ from that in Technical Data Corp.

2.What pre-money value would you place on the company? I.e., what value should the Horizon team place on the company when they try to raise money? How much money should they attempt to raise?

3.How should Horizon approach their fundraising process? Should Horizon go to a venture capital firm or to family and friends? If Horizon decides to go to a venture capital firm, which firm or firms should they target?

4.Can a venture capitalist add value to the Horizon team? How?

Assume:

. Horizon’s marginal tax rate is 36%
. Expected inflation is 3%.

Read the Case Study: Horizon Communications Corporation (A)

Please, add your answers in the comment section below!

Invest - from Flickr

I’ve started studying the Entrepreneurial Finance at MIT OpenCourseWare by myself a month ago. I wrote my first post about the first case study here (Technical Data Corporation Business Plan).

Until now, I think the selection of the case studies are awesome. It presents many cases where the student is put in the position of a venture capitalist and an entrepreneur. For instance, you have to learn how to valuate a business and decide if you want to invest in a specific company. Plus, you must provide your analysis to decide what you want to do next.

Today, I’m want to present my summary and my recommendations about the Centex Telemanagement, Inc. case study.

Centex Telemanagement, Inc.

- The case starts with the story of Sierra Ventures and its found Peter Wendell. Then, it talks about how Wendell met with Jeffrey Drazan. Drazan was a VC associate hired by Wendell. In this part of the case, it gave me a very interesting vision of how VC hires an associate to work with. Wendell wanted to invest in the telecommunication industry after the break-up of AT&T’s monopoly and he wanted to find a person with experience in telecommunication industry. Luckly, Drazan, who was in that industry, wanted to go to the VC industry. They had the chance to meet each other and the relationship developed.

- Later, it shows quickly the Centex Telemanagement formation, but the focus is how Drazan found and brought this opportunity to Wendell. Drazan worked with the Centex Telemanagement by acting as the CFO of the company. However, Centex and Sierra hadn’t formed any formal and legal relationship yet. Drazan was supporting the financial projections and planning the growth of the company. Everyone was expecting the Sierra would make an investment to Centex. When they were almost closing the details of the investment, the Sierra founders decided not to continue to the plan. Drazan was shocked because he dedicated an amount of effort to the company and it would ruined all his efforts. However, after some negotiation, they closed the deal in a staged/milestone-oriented approach to the deal.

- To get higher valuation, Centex would need to achieve some milestone, such as hiring the CEO and some other people in the senior management and also Centex would need to achieve an X amount of revenue by a deadline.

Assignment from MIT OpenCourseWare:

Centex Questions:

1. Sierra Ventures and Centex:

-Describe the deal structure:
-What role does Series C Preferred play?
-What value does right of first offer have?
-What valuation is Sierra offering to Centex? How can Sierra justify this valuation?

2. Private (initial) investors:

-How much dilution do the initial investors experience?
-How much dilution would the initial investors have experienced, if they had anti-dilution protection on their initial investment of $499,999? (Full ratchet? Weighted ratchet?)

Assume that by May 1985 the private placement offering has raised the full $499,999 for Centex at $2.25 per share

Read the Case Study: Centex Telemanagement, Inc. – 286059p2

Please, add your answers in the comment section!

The Technical Data Corporation Business Plan is the first case study from the Entrepreneurial Finance course from MIT OpenCourseWare. It is a business plan prepared by Jeffrey P. Parker in late 1980.

The case describes that Technical Data wants to raise $100,000 before the end of 1980 in the form of 20 Units. Each Unit would have 50 shares of common stock offered at $10 per share and a promissory note (debt) of $4500.

Technical Data Corporation: Business Plan

You can read the case study here: http://utopia.duth.gr/~gk7844/moustakis/M1-2007-08/business_plan_example_1.pdf

Then, in this lecture, there are some questions regarding about this case from the open course. I answered them in bold.

Technical Data Corporation: Business Plan The case contains excerpts from a business plan prepared in late 1980.

The entrepreneur, Jeff Parker, proposes to start a company that will supply information to professional investors in the bond market. Among the issues you might address are the following:

1. Should Parker enter the business?

Parker is asking for $100,000 to start up the company. He will create a business based on an existing market of Telerate customer. If he secures, as he stated, the deal of promotion to Telerate’s customer, he is able to attract customer to his financial product and earn a stable source of revenue through the monthly subscription of the service. So, he should enter the business.

2. Would you invest in this deal?

He structure his deal in a promissory note and a few shares of his company. This type of structure is not ideal for a venture capitalist nor private equity partner. First, there is no incentive of high payoff in the $4500 from promissory note even if the interest rate is 15%. Second, the percentage of ownership is small, thus the active investors do not have a great say in the company. Lastly, the company’s grow depends on the Telerate customer base, so there is not a huge or exponential growth rate for the business in the future.

3. How has the deal been structured? Why? (Note that Parker is selling equity for 10% of the company in the units. The two directors with 1.5% each are buying 3 units each.)

The deal is structured in this way:

- 20 Unit
- Each unit having $ 5000 in value
- $ 5000 X 20 = $ 100,000

Each Unit:
- 50 shares of common stock at $ 10 / share
- promissory note of $4500

This is a great exercice. The next case I’m studying is the Horizon Communications Corporation (A), this one is much harder.

Load Impact - check how well you website can handle heavy workload @ http://loadimpact.com/

Seedcamp – check an entrepreneur event where you can meet with a lot of interestign people with interesting ideas @ http://seedcamp.com/

Chocolate Cookies – I made some cookies today with this recipe @ http://www.joyofbaking.com/ChocolateCookies.html

A Run - an Ivey student blog about his preparation for the MBA @ http://totalenthu.blogspot.com/

Ivey Entrepreneurship – Ivey’s blog about entrepreneurship in Canada and elsewhere @ http://iveyentrepreneur.blogspot.com/

Job seekers guide for venture capital – Rotman Business School’s listing about interesting information for those who are going to become VC someday @ http://www.rotman.utoronto.ca/bic/CCC/targetVenture.htm

Introduction to Financial Accounting – Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course328.html

Introduction to Managerial Accounting - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course542.html

Essentials of Business - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course330.html

Business Writing Review - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course91.html

Business Valuation - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course123.html

General Psychology - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course1467.html

Introduction to Writing Fiction - Online course (UC Berkeley Extension) @ http://www.unex.berkeley.edu/cat/course180.html

Introduction to Capital Budgeting - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8561

Essentials of Business Plan Writing (Online) - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8526

Elements of Corporate Finance (Online) - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8370

Introduction to Mergers and Acquisitions (Online) - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8375

Fundamentals of Business Administration and Management (Online) - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8639

Planning for Success - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8549

Fundamentals of Business Strategy - Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8547

Introduction to Boards -  Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8560

Entrepreneurial Marketing -  Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8559

Introduction to Venture Capital -  Online course (UCLA Extension) @ https://www.uclaextension.edu/r/Course.aspx?reg=U8373