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Gammagraphics Case Study

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Gammagraphics Case Study

  1. 1. MT5880C Disruptive Technology and Value Innovation Team 5
  2. 2. Scope Introduction Financing Options (1st Round) Financing Options (2nd Round) Analysis Conclusion 2
  3. 3. Introduction Dr. Partnership Dr. Hank Michael Magnuski Lutz Formed early 1982 Initial capitalization ($5K each) Graphics teleconferencing Funds used up by mid-1982 3
  4. 4. Goal To achieve:  Sales turnover $10 million/year  Profit margin 10% of sales Sell for P/E 20x Company valuation at $20 million Get 3 million each 4
  5. 5. 1st Round FinancingOptions Option 1:  Family & Friends Option 2:  Angel Investors Option 3:  Venture Capitalists (VCs) 5
  6. 6. 2nd Round Financing VC 50%Pre-money valuation Post-money valuation $4 million $8 million Annual compound return rate (r) $20 million = $ 8 million x (1 + r) n n = 3, r = 35.7% > 35%  n = 2, r = 58.1% > 35%  6
  7. 7. Option 1 - Family andFriends st After 1 Round st1 Round $1.9m 6 months at most Supportive $0.1m After 2nd Round 2-3 years later2nd Round - VC $4.75 million each $10m $9.5m $4m $3.8mLegend : Hank & Family & VCs $0.2m Mike Friends $0.5m 7
  8. 8. Option 2 – AngelInvestors st After 1 st Round1 Round 1 year or so $1.5m Business connection $0.5m Professional advice After 2nd Round 2-3 years later2nd Round - VC $3.75 million each $7.5m $10m $3m $4m $1m $2.5mLegend : Hank & Angel VCs Mike Investors 8
  9. 9. Option 3 – VentureCapitalistsst After 1 Round st1 Round 1.5 – 2 years $1m $1m No track record Diluted ownership After 2nd Round 2-3 years later2nd Round - VC $5m $2.5 million each $10m $2m $4m $2m $5mLegend : Hank & 1st 2nd Mike VCs VCs 9
  10. 10. Decision Individual % founder Pros and Cons Gains shareFriends & • 100K will sustainfamily $4.75m 47.5% startup for 6 months onlyAngel Why AngelInvestors $3.75m 37.5% investors??VC • Less % $2.5m 25.0% ownership • Difficult to obtain 10
  11. 11. Conclusion/KeyTakeaways Take angel investors funding Good business connection Helpful advice/mentorship Upon company sale  $3.75 million each for Hank & Mike 11

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