Qualities, Valuation, Term Sheet, And Timing Dilemma Of Neverfail Computing - Analysis

The Qualities that Attract Venture Capitalists

1. What are the qualities of Neverfail that attract venture capitalists?
2. Examine the valuation of Neverfail: Assume that Pacific Ridge Capital expects to realize an IRR of at least 40 percent per year over five years on this round of investment. What does this imply for the future sales and income of Neverfail? Bear in mind that there will possibly be another round of investment in about 12 months.
3. Appraise the conditions on the term-sheet from the perspective of both Pacific Ridge Capital and Neverfail.
4. Why does Neverfail insist on signing the deal before the new-year?

1. Neverfail Computing’s search for the venture capital started with presentation of six minute at the venture capital conference of American Electronics Association. In that presentation, Tim gave an overview of Neverfail computing, the computer industry’s future as well as how they were positioned for prospering (Drover et al. 2014). Leo stated that they would invest early money in the company at the first meeting. The company has also conveyed a casual and a relaxed negotiating attitude. The reason is, according to Tim, they were not interested in the raising capital. The partners of Neverfail computing conceded as the serious negotiations started that they required venture capital. In reality, the urgency was growing ass the company has faced a cash crunch. On the other hand, sales were not being able to meet the fourth-quarter objectives (Aggarwal et al. 2014). Neverfail has finished fourth quarter 30 % under the plan. Therefore, the organization required money to finance continues and deals the rapid growth of it. George was approached for a loan of short-term goal. Therefore, the straight forward nature of the company management as well as the cool and calm negotiation nature of the organization has attracted the venture capital the most.

2. According to the valuation if the IRR of investment is about 40 % that is the rate that implements the present value of the cash flows of investment equivalent to zero (DeFusco et al. 2015). Therefore, it can be said that the project is desirable. Thus, it can easily be said that the future sales as well as the income of the company would be impact in a positive manner. However, it cannot be said that the IRR of investment would be same for another 12 months investment after the five years. Thus, the future sales and the income of the company would vary depending on the change in the IRR rate of investment for those 12 months.

3. All of the deal points on the term sheet were not appropriate from the perspective of both Neverfail Technology and Pacific Ridge. Two deal points were not liked by Neverfail Technology (Jackson et al. 2012). These are regarding a 20% accruing annual dividend and an On-demand IPO registration rights. From the Pacific Ridge perspective, if Pacific Ridge cannot be able to conclude the deal at the weekend there was no way that the deal could be signed by the New Year.

4. According to the dilemma, described by Ted, even if a deal is negotiated by Pacific Ridge that weekend, little time for due diligence investigation of Pacific Ridge as well as for drafting the deal would be there (Bierman & Smidt, 2012). There was no way that the contract can be signed by the New Year timeline, if they did not make any conclusion the deal at that weekend. Therefore, due to this dilemma, Neverfail insists Pacific Ridge on signing the deal before New Year.

References

Aggarwal, R., Kryscynski, D., & Singh, H. (2015). Evaluating Venture Technical Competence in Venture Capitalist Investment Decisions.Management Science, 61(11), 2685-2706.

Bierman Jr, H., & Smidt, S. (2012). The capital budgeting decision: economic analysis of investment projects. Routledge.

DeFusco, R. A., McLeavey, D. W., Pinto, J., Runkle, D. E., & Anson, M. J. (2015). Quantitative investment analysis. John Wiley & Sons.

Drover, W., Wood, M. S., & Payne, G. T. (2014). The effects of perceived control on venture capitalist investment decisions: A configurational perspective. Entrepreneurship Theory and Practice, 38(4), 833-861.

Guerra, M. L., Magni, C. A., & Stefanini, L. (2014). Interval and fuzzy Average Internal Rate of Return for investment appraisal. Fuzzy Sets and Systems, 257, 217-241.

Jackson, W.E., Bates, T. and Bradford, W.D., 2012. Does venture capitalist activism improve investment performance?. Journal of Business Venturing,27(3), pp.342-354.