Deck 19: Presentations and Deal Negotiations

Question 1

Business plan contests offer an opportunity for entrepreneurs to present their business plans. The Clean Tech Open in the United States offers one such contest (www2.cleantechopen.org). Visit the site, study the description of the winners, and prepare a brief report on an enterprise that most interests you.

Answer 1

AutoAgronom is an Israeli company which had developed systems which save water usage in agriculture by 50% and the usage of fertilizer by 30% through the use of sensors at the plant root level. This company was declared the winner in the Clean Tech Open contest in 2014.
Israeli agriculturists were pioneers in maximizing yields per liter of water for most crops through innovative practices such as drip irrigation. Since water is scarce in Israel, water usage had to be optimized. Agriculture is the highest consumer of water and in water scarce countries, this technology is a great boon. The Israeli company AutoAgronom has gone further in depth by developing sensors which find out at the root system of the plant whether and how much water is required. These sensors also measure the soil nutrients, the PH level, electrical conductivity, dissolved Oxygen, nitrates and so on around the root system of the plant, so that appropriate quantity of fertilizers is applied.
This technology has the following advantages:
• Reduction in usage of water.
• Greater development of the root system in plants when they seek nutrition from the soil. This results in higher yields.
• Reduced quantity of usage of fertilizer. This not only reduces costs, but also it prevents leaching of excess fertilizers into the underground water system which may also be used for potable purposes.
• Environmentally sustainable agricultural practice.
This company has been acquired recently by a Chinese company Yuanda, which paid US $20 million to the Israeli company promoters.

Question 2

State your venture's elevator pitch (see Section 6.4).

Answer 2

My organization is a strategy firm in the management consultancy business. Our company advises CEOs of large firms, Heads of governments, international bodies such as the World Bank, IMF, the UN organizations and so on regarding issues which are of top concern to our clients. The areas of service include advising on the future growth direction, performance improvement, competitive strategies, business portfolio analysis, strategy appraisal, organization design and so on.
The organization is a partnership having five partners who each has specialized domain experience and expertise.
• One of the partners is a retired senior bureaucrat who has considerable contacts and goodwill in government departments.
• Another partner is a retired senior banker who has contacts and well wishers in the financial community.
• A third partner is a senior corporate lawyer who is well versed with laws and regulations regarding operating a business enterprise.
• The fourth partner is a renowned economist who is well regarded in the international community.
• The fifth partner is an engineer and business management graduate who has held senior positions in industry, besides having worked with a boutique strategy consulting firm.
Below each of the partners, there are practice heads, engagement managers, consultants and associates.
There is a finance and administration manager, besides a human relations executive.
The billable hours of our consultants are the resources we make available to our clients. These generate our revenues. We plan that the billable hours should be at least 60% of the total of 1,800 hours available in a year per consultant. At least 30% of the 1,800 hours is spent on training, skill development, business development, volunteering and so on.
In addition, we also engage with our clients for performance improvement, where our revenues are a ratio of increased profitability and/or decreased costs which are directly attributable to the recommendations we give to our clients.
We aim to generate average revenues of $300,000 per consultant in a year.
Our venture's " elevator pitch " would be as follows.
• Our mission is to help our clients in creating long term value for all their stakeholders.
• For the complex problems facing CEOs of business organizations, heads of institutions, government leaders and so on we not only provide creative and innovative solutions but also help the clients in implementing these solutions.
• Our team, including the partners, the practice heads, engagement managers, associates and so on have not only the best academic credentials which have been honed by hands on experience in a variety of business contexts but also in different kinds of economic environment. All the team members have superior problem solving skills.
• The Indian business environment and economic scenario is unique where globally renowned consultants such as McKinsey, Boston Consulting Group, Bain, AT Kearney, Roland Berger and so on may not have the expertise which we would have.

Question 3

3 As the CEO of a new technology venture, you and your team have set a valuation for your firm of $10 million (pre-money) and found a willing venture capital firm. The venture capital firm, however, has set a valuation of $6 million. Revenues next year are projected to be about $6 million, and the firm will be profitable next year. Identify a negotiation approach for achieving a reasonable compromise valuation.

Answer 3

Negotiation:
Negotiation is a decision making procedure between two or more parties who do not share identical preferences. Usually, in this decision making process the beneficial outcome can favourable for all parties, or just for one of the party involved in the decision making process.
Determine negotiation approach for achieving a reasonable compromise valuation for the given case:
Investors will have goals based on the returns and time horizons to receive the returns. Entrepreneurs will have goals based on growth, success and achievement, and return on investment. Both parties will have to come up with good options so that there is no scope to adjust the deal. Finally, the parties agree to a deal that offers a fair solution to their requirements.
In the given situation, the venture capital firm has set a valuation of $6 million for NT venture, whereas the CEO of NT venture is estimating a valuation of $10 million. This can be negotiated by considering better options that will be suitable for both the parties.
Suitable options:
Since NT venture is expected to be profitable next year and it will be able to produce $6million revenue turnover in the coming years, the venture capital firm can increase the valuation of firm by $2 million more.
Chief executive officer (CEO) of NT venture can reduce its valuation by $2 million less considering no-deal option to move and negotiate with new investors. Also, market risk factors have to be considered by the CEO to reduce the valuation of the firm.
Hence, in this negotiation approach best deal of settlement for both parties would be $8 million. The value of $8 million for NT venture will be the best option for CEO of the company and venture capital firm.

Question 4

Provide an outline of the presentation for describing your venture to investors.

Question 5

4 What is a term sheet? Specify three clauses in the term sheet that you would want as an entrepreneur. Specify three clauses in the term sheet that you would want as an venture capitalist. Why is it important both parties are happy with the resulting deal?

Question 6

Sketch out a term sheet outlining your venture's capital needs, the amount of the company you are interested in selling (e.g., number of shares or what percentage of the total shares), and any other negotiation terms you consider important.

Question 7

5 What are the key factors a venture capitalist uses to value a new venture? Describe what value parameters are mostly likely different between an investor and an entrepreneur.

Question 8

6 What deal terms can a venture capitalist suggest to ensure entrepreneur incentives are aligned in both good and bad times for the firm? What are deals terms an entrepreneur would suggest to ensure investor incentive alignment in both good and bad times for the firm?

Question 9

7 Why is it critical both the investor and the entrepreneur are happy with the final deal? Who loses if this is not the case?