Question:
Case Study -How we started a multi-million pound company with nothing but a fax machine
From re-mortgaging their houses to pitching on Dragons' Den, here's how Oly and Toby Richmond turned a love of cars into a national servicing enterprise..
Describe your start-up barrier:
The biggest challenge we faced early on was taking our business nationwide. Despite having started with just a fax machine in a spare bedroom, we now needed funding, and to contact garages all over the UK and convince them to join our network.
It wasn’t hard to get the garages on board once they were in arm’s reach, but we invested a lot of time and money into a small team of people who we had recruit the garages, speak to the mechanics, get to know them and undertake a comprehensive review of all of their financial data and insurances. This team is still going strong today as we are on a constant recruitment drive.
The second challenge for us was ensuring that all of our garages complied with our standards, quality assurances and company values so that our vision for the business would come true.
Unlike every dealership out there, we are not a franchise and do not own our garages. We hire the cream of the crop when it comes to government-approved garages and skilled mechanics; this means keeping checks and balances on them is essential.
The last challenge we were faced with was getting our pricing to align with what we wanted the business to be. They say when you buy cheap, you buy twice, but not with us. We wanted to make a premium product affordable, and we are still sticking to that promise today.
Answer:
Specific startup venture; Bimark ltd, a young company in fashion and design industry that is targeting 15-60 years old market niche
Salient issues
The most important issue in entering negotiation with venture capitalist is the valuation of the company shares. This will determine the size of the equity the venture capitalist will get from you company after financing its start up. The valuation must be correct such that it does not undervalue Bimark ltd startup idea eventually leading to a scenario whereby the venture capitalist takes up the lion share of the company or overvalue the company such that it will be hard for the company to receive further assistance from the venture capitalist. (Bloomfield, 2008)
Another important issue to be noted by Bimark ltd is the timing of the investment. After securing funding most of them come in trenches tied to certain milestones the company would be achieving with time. The milestones must be timed appropriately such that it does not get to a point where the milestones promised were not realistic yet these milestones are tied to investments from venture capitalist that come in installments. Therefore the company can find itself in difficult position if it does not plan itself accordingly. (Sloane, 2007)
Modification of the management team, sometimes after the company or startup secures investment it the creditors or the venture capitalist may need additional personnel who are their trustees to be included in the management of the company to ensure that the investment provided is put to the right use. This issue must be addressed carefully in order not to relinquish certain important roles in the company that need someone who fully understands the idea of the business. (Bloomfield, 2008)
Critical analysis of the specific statement
The statement given by Felix Dennis is valid when critically analyzed. The statement suggests that it is quite difficult sometimes to obtain investors to fund a business idea. This is correct because many of the startups would have to undergo rigorous tests by the investors to taste the viability of the idea before agreeing to finance it. Therefore many startups will fall at this point because the investors may request more study to be done by the bearers of the idea to make their idea of business as viable as possible. This further study will require funding same thing they are looking for therefore the idea may not proceed beyond this point. It is the bearers of the idea that really understand it well but the investors may not go that far. The statement also notes that best legal advice is the most important aspect of the funding that most be taken care by the startup management lest they lose the whole venture to the capitalist. (Quindlen, 2014) This statement is correct because each party has its own interest to take care of. The investors will want to get as much as possible from their investments similarly the owners of the startup also want get maximum as possible from the investments so each party needs to take care of own interest which sometimes leads to one side getting more because that was entered into the initial agreement. Another important aspect of the statement is the fact when the initial contracts is being entered it may entered in rush to secure the funding but years later down the road some pieces in the agreement that were not looked into properly when the contract was being developed may come to haunt the owners of the Bimark ltd. (Wijbenga, 2013)
Bimark ltd is a young company in fashion industry targeting teenage market through to phase where most of the people begin their retirement at the age of about 60 years. The company develops designer outfits that embrace each of the phases along the age bracket of its target market. The company seeks to fund its idea through raising capital via venture capitalist in exchange of the 20% equity of the company shares. The startup as already begun implementing its idea but it is not fully functional as it needs to setup a robust online platform that with good user-friendly interface and functionalities that makes online shopping for its product as simple and enjoyable experience to its target market. The company also needs to acquire and run more physical shops or boutiques in strategic locations within London to serve it clientele. The company is currently using social media pages for sales and from the results obtained the company believes that implementing the startup in full will bear more positive returns.
References:
Bloomfield, S. (2008). Venture capital funding. London: Kogan Page.
Quindlen, R. (2014). Confessions of a venture capitalist. New York: Grand Central Publishing.
Sloane, P. (2007). The innovative leader. London: Kogan Page.
Wijbenga, F. (2013). Strategy and performan[c]e of venture capital-backed SMEs. Capelle aan den IJssel: Labyrint Publication.
