Question:

Marc was sitting in his class at UTS after a great morning of surfing but really bothered by the comment made when he was coming out of the water. An attractive girl said, “Great moves but you look like a dancing seal with that last wave.” It was that moment that he decided he wanted a new wetsuit.

Fast forward two months, and Marc had only seen similar wetsuits or a purple/yellow one that made him look like Barney the Dinosaur. He started enquiring about a bespoke wetsuit and found that none existed. He approached some friends that were in the business and they came up with an idea to design more colourful wetsuits. One friend is a designer and said he would help but was only interested in coming on board as a Founder. Another said he could help with the marketing but wanted a percentage of every wetsuit sold. A friend from the law faculty said he would help with setting up the business structure.

1. What would you recommend as the business structure and why? For each of the three friends, how would they be paid for their services?

Marc found a supplier in Hong Kong who is willing to supply the wetsuits for $200 each. He thinks he can sell them for $500 because the average price of a wetsuit is about $400 and these would have interesting colours and designs and a special material. Marc wants to set up a website and a store at Bondi Beach and needs to come up with capital for an ecommerce platform, inventory, rent, marketing and staff. He estimates it will cost him $20,000 per month for rent and staff and he wants to hold at least 300 wetsuits.

2. Try to estimate the average costs for an ecommerce platform and compare it to a physical store. What are the pros and cons? (Hint: Determine one-off (e.g. website design) and recurring costs (e.g. rent)).

3. What would be the break-even point each month? How much does he need in financing for the first six months if he does not sell anything and does not take a salary?

At this stage, no wetsuit has been sold yet. However, Marc wants to raise funds and knows about several different ways. He contemplates crowdfunding, equity investments, and bootstrapping.

4. Compare startup funding sources in this particular case and find the best fit in your opinion.

5. Suppose Marc chose Kickstarter as crowdfunding platform. Create a plan for a crowdfunding campaign, incl. decisions about marketing budget, agency vs. no agency, national vs. international etc.

6. What kind of investor should he approach for an investment? Are there any other structures you would recommend?

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