Valuing Project Achieve
HBS Case No.: 201-080; Teaching Note: 201-130
Posted: 29 Jan 2002
Date Written: June 1999
SUBJECT AREAS: Valuation, Entrepreneurial Finance, Corporate Finance
CASE SETTING: June 1999, U.S. Software
Project Achieve is a startup providing information management solutions for schools. Its founders see a need for software both to manage the volumes of information necessary to administer a school and to connect parents, teachers, and students in a more effective way. Originally funded by angel investors, Project Achieve is raising its first formal round of financing and needs to establish a firm valuation. The case outlines the economics of the business and provides the necessary background figures to build the business model and arrive at a valuation.
This case explores quantitative considerations of venture financing: (1) value neutrality of equity issuance is illustrated; (2) cost of capital is computed from raw return series, and the appropriate discount rate is selected based on comparables; (3) decision trees are used to highlight the importance of probabilistic thinking; and (4) subscriber models are compared with annual free cash flow models both for determining financial value and as decision-making tools for business choices.
In addition, the case can provide a setting to discuss the more qualitative issues involved in choosing investors. In particular, the founders are comparing two options: an infusion of additional capital from current and new investors or an investment from a potential strategic partner. Each option has very different implications for the direction of the business going forward.
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