DrAIve: Investment Recommendation, Risk Assessment, and Exit Strategy

This project assignment requires a comprehensive investment recommendation for DrAIve, a company specializing in semiconductor chip designs for driverless vehicles. The student analyzes the market, business model, team, and financial aspects, recommending whether DrAIve is a good investment and assessing associated risks. The assignment then tasks the student with developing an exit strategy, including valuation calculations and returns for investors and entrepreneurs, drawing on knowledge of valuations, deal structures, and exits. The analysis incorporates financial projections, including revenue, cost, and net income predictions, to determine the exit value and potential returns for stakeholders. The student considers various exit paths, such as sale to a third party, and calculates the exit value based on revenue multiples. Finally, the student reflects on the importance of planning and valuation in the exit process.

MODULE 8 UNIT 3
Activity submission

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3. Questions
For your final activity submission, you need to create a comprehensive investment
recommendation. This requires you to consolidate what you have learnt throughout
this programme.
Choose DrAIve (attached PowerPoint file) – and answer the questions that follow.
Use all the information that you have learnt about the case studies by referring to the
PowerPoint slides, Excel spreadsheets, and answers to your previous submissions to
formulate your answers in this activity submission.
Question 1
Question 1.1
Using all the information about the case study you have chosen, recommend whether
you think this would be a good investment and provide reasons for your choice.
Ensure that you assess and suggest the risks that would be involved were you to invest
in this venture. Make sure that you cover the following types of risk:
 Market
 Business model
 Team
 Finance
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(Write 200–250 words)
Start writing here:
Market
Marketing on the mobile banking applications would be good for all people in rural
and urban areas as it would bring all their banking services and needs close to them in
their mobile phones (Alalwan at al, 2017). From the data that has been seen in the
population of South Africa, most of the citizen doesn’t have an access to the banking
services especially the modern services. At least 50% of the people has been seen and
confirmed to be in the informal sector. One of the measures that UnblockAfrica could
be looking into is the research on the type of jobs most of the population thrive in.
This would determine their income and also be in opposition to develop mobile
banking applications that would better suit their needs. The company would face
some risks like weak back end computer servers which may increase chances of
hacking. There may also be a risk of compromised values during authentication
(Carver, 2018).
Business model
Marketing the use of mobile banking services would require to be done through the
physical meetings and physical demonstrations so that the potential clients can
understand better on the services. This is because of the increased unlawful theft that
happens in social media sites and many may not believe on them (Marcum, 2019).
Having lost money on these sites, a client may hesitate even to know more of the
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mobile application when it’s just advertised on the social media. It’s important that
marketing can be introduced in all the branches of banking institutions that the target
clients use for their services. This will enhance one on one conversation that would
increase the chances of the brand gaining popularity and success in the market.
Team
Throughout the marketing and increasing the awareness for the use of mobile
application to access the banking services, it’s important to note that may people will
believe more on the people around them (Schoenfield, 2019). This means that the
company can choose one of the marketing teams from the community that the target
market is located (Flores et al, 2017). The people around this target market will
enhance and build confidence among the community. Although the team would face
some resistance due to lack of proper knowledge of the App and lack of android
phones that would facilitate access to the mobile application being introduced to the
market.
Finance
The project would be expensive to introduce and implement in the market (Atwal,
2017). This is because the target population may not have regular income that they
could use the banking app on their mobile phones. Aforementioned, it would be wise
to focus on the high end market with the people occupying high level jobs that have
regular income. This would support the mobile application app in the long run if
marketed well by a dedicated team.
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Question 1.2
Based on the work you have done in the previous modules (especially those focusing
on DrAIve and UnBlockAfrica), and referring back to the investment memorandum
you made in Module 5 (attached word file under name Module 5), your final
assignment is to develop an exit strategy for your chosen company.
Assuming that the company does not fail, what would its exit path look like? Showing
your calculations, determine the exit value the company could achieve, and the returns
to both the investors and entrepreneurs. In answering this question, draw on what
you’ve learnt about valuations (Module 4 – attached file), deal structures (Module 7 –
attached file), and exits (Module 8).
(Write 500 words)
Start writing here:
During the exit of the company or ceasing of the real owners of the business from its
operations, would depend on a number of factors. It would require that the company
owners focus on a number of possibilities if they exit from the company. These
possibilities will enable the owners not to waste a lot of time in the course of the
investment. The business owner should look into the initial goals they had set at the
start of the business and know whether they have achieved them. If yes, then the
business can go ahead with the plans to have the business exit. The owner should
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consider on both the merits and demerits of exiting the business. The company could
use the exit strategy that would be chosen and agreed by all the stakeholders of the
business. In this case, it would be important and beneficial to exit the business
through the sake to a third party. The third party in this case, would be the financial
institutions that provide banking services to the targeted market. This would be the
best way to exit because the business would remain relevant and its success will now
depend on how the banking institutions will handle the clients and grow the portfolio.
The third party now who is the main point of contact by the clients would not blame
anything on the initial owner of the business after the takeover because all the
infrastructure and functions have been taken over by the third party and performance
will depend on the strategies used to gain the clients and keep them.
Aforementioned, I have learned that before a company exits, it’s important that it
plans in advance and reviews all its goals and achievements from the time it started.
Exiting will also depend on the agreement of all the stakeholders of the business’ have
also understood that before the exit, the company needs to do valuation of the
business and return on investment to the shareholders and investors of the business.
This would essentially determine of the exit is worth and beneficial to all. During the
pre money valuation of the business, the third party would peruse the financial reports
of the company to determine its worth. From a report that has been compiled over the
few years that the business has been in operation would be presented for valuation and
determination of the rate of return to investors.
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P&L Prediction 1st Year 2nd Year 3rd Year 4th Year 5th
Revenues 138,422 1,944,947
11,255,09
5 36,539,882 54,677,143
Cost of
acquiring new
clients 262,612 2,012,479
10,767,26
4 20,727,163 20,727,163
Gross Profit -124,190 -67,532 487,831 15,812,719 33,949,979
Gross margin -89.72% -3.47% 4.33% 43.28% 62.09%
Expenses
SG&A 120,000 180,000 240,000 300,000 360,000
R&D Cost 180,000 180,000 180,000 180,000 180,000
Wage bill 600,000 720,000 960,000 1,440,000 2,400,000
Total Expenses 900,000 1,080,000 1,380,000 1,920,000 2,940,000
Net Income
before taxes -1,024,190 -1,147,532 -892,169 13,892,719 31,009,979
Net margins 38.02% 56.71%
Taxation
payable - - - -3,032,072 -11,714,866
Net Income after
Taxes -1,024,190 -1,147,532 -892,169 10,860,647 19,295,113
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The business would be worth to takeover and hence the third party would just be in a
position to give the initial capital that the investors had pumped in the business. The
exit value of the business would be calculated from the multiples of income/revenue
that the business has accumulated over the years till the year of sale.
The exit value of the business that would be shared by the stakeholders would be
calculated as below;
Exit value rate of return=Pre-money valuation/Estimated exit value
*100
$602,250,000 / $127.050, 000*100 = 47.40%
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References and sources of information
Alalwan, A. A., Dwivedi, Y. K., & Rana, N. P. (2017). Factors influencing adoption
of mobile banking by Jordanian bank customers: Extending UTAUT2 with
trust. International Journal of Information Management, 37(3), 99-110.
Atwal, G., & Williams, A. (2017). Luxury brand marketing–the experience is
everything!. In Advances in luxury brand management (pp. 43-57). Palgrave
Macmillan, Cham.
Carver, C. J., & Wolsey, K. (2018). U.S. Patent No. 10,049,408. Washington, DC:
U.S. Patent and Trademark Office.
Flores, D., Horton, Z., Jones, K., Mouton, L., & Rios, D. (2017). TEAM
MARKETING PLAN.
Marcum, C. D., & Higgins, G. E. (2019). Cybercrime. In Handbook on Crime and
Deviance (pp. 459-475). Springer, Cham.
Schoenfield, M. (2019). Permission to Believe: Why Permissivism Is True and What
It Tells Us About Irrelevant Influences on Belief. Contemporary
Epistemology: An Anthology, 277-295.
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