Investment Recommendation and Exit Strategy: Venture Finance Analysis

This report provides a detailed investment recommendation for a venture finance project, specifically focusing on either UnBlockAfrica or DrAIve. The analysis includes a thorough assessment of market risks, business models, and team dynamics. The report evaluates the potential of the venture, considering factors such as the target market's behavior, the impact of financial technologies, and the feasibility of the proposed business model. Furthermore, it develops a comprehensive exit strategy, including valuation calculations and projections of returns for both investors and entrepreneurs. The report draws on the provided case study information, including financial statements, and integrates findings from previous modules to offer a well-rounded perspective on the investment's potential and exit pathways. The report also emphasizes the importance of considering various exit paths, such as selling to a third party like a bank, and includes an assessment of pre and post-money valuations to determine the financial merits of the investment.

VENTURE FINANCE 1
First Name
Last Name
Institution

VENTURE FINANCE 2
3. Questions
For your activity submission, you need to create a comprehensive investment recommendation.
This requires you to consolidate what you have learnt throughout this programme.
Choose one of the case studies – UnBlockAfrica or DrAIve – 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
(Write 200–250 words)
Start writing here:

VENTURE FINANCE 3
Market
It would be a good to provide the affordable and easy to access banking solutions and services to
the 50 % of the South Africa citizens. Indeed it would be a good move but at the end it may be
followed by negative impacts. This is because the population that doesn’t have any access
banking services may have resulted to this due to a number of reasons. To start with, the people
with no banking details may have avoided looking for the services due to lack of formal
employment that would require them to have the bank details for their benefits and compensation
payments. The other thing that would have led to high number of people not securing banking
services would have been due to being comfortable with the old methods of banking due to fears
of online hacking of bank details that have been experienced in future leading to loosing of
money.
Business model
Advertising through the social media for the use of the mobile application to access banking
services would not reach the potential clients well but use of physical campaigns to raise
awareness of the mobile application would be better. The other way that would work best is by
collaboration with the leading financial institutions so that the mobile application app services
can be introduced there. It may be introduced once the customer visits each of the branches or
through clicking on his/her banking website for services. This would build more confidence to
potential customers. The business model would be successful if the mobile application would
gain a lot of clients. This follows the acceptance of the brand in the market before the exit of the
company.
Team

VENTURE FINANCE 4
Throughout the establishment of the exit plan by the business, it would require at least the
company to employ some external services to explore the market in details. This research
conducted by professionals would enable the company conduct an accurate valuation while
planning for exit. The services of the professionals would help at the time of research and
evaluation of the business to ensure that the outgoing owner of the business gets a good return on
his investment.
Finance
This would not be a project worth the investment. This is because, the population targeted may
be having a lot of reasons why they are not securing those banking services. The owner of the
business through the services of the professionals will be able to get an accurate amount that will
be expected at the end of the investment. It would be at least good to focus on the working
population in formal sectors who may be having knowledge of the importance of such banking
services (Ferreira, 2016).The focus should be on the major institutions that provide services to
The team involved may be the best in steering the awareness of provision of banking services but
the targeted population may be the problem.
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
Unit 3, your final assignment is to develop an exit strategy for your chosen company.

VENTURE FINANCE 5
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, deal structures, and exits
(Write 500 words)
Start writing here:
The exit of the company would start with the stakeholders of the company putting focus on all
the possibilities (Waddell, 2017). This is to avoid a lot of spending and waste of time in the
course of the investment. The business should establish what they have so far achieved while
planning for their exit route and also assess if the business can now exist with them. This is in
considering both the advantages and disadvantages that comes from the exit of the business from
the initial owners. It’s important that the business spends money on other resources on an exit
path that is best for them (Blank, 2020). One of the best exit path the company would use in
regard to the services that its providing would be selling its services to a third party. This third
party now will essentially mean the banks that will have a consensus with the service provider to
transfer all the rights for the mobile app application to be used in their bank for their customers.
None the less this would essentially mean it shall be possible if the initial campaign on the
mobile banking app was done well and accepted by the targeted customers. It would also be
imperative determining the best path for you that would be able to meet all the requirements right
from the foundation of the investment (Merker, 2019).This would comprise the below;
 How much funds do you need after the company sells the services to the banking
institutions?

VENTURE FINANCE 6
 When does the company want to exit?
 Who in particular does the company want to be succeeded with in ownership?
Those are just some of the questions a company will need to ask before it finds its best path of
exit from the market. In addition, it would also be required to understand if it needs to maintain
its legacy, culture or even rendering the benefits to the society.
From the exit paths of the company and businesses, I have learnt that its wise for the business
planning exit should at least have professional who will perform some cash flow projections that
will determine the sufficient money that’s available to even contemplate a third party purchaser.
I have also noted that pre and post money/ funds valuations cannot be analysed while in isolation
during the analysis of financial merits for the valuation proposed. There are other important
factors that have proved to be important in valuation such as liquidation, dividends and
preferences that in most times determine of the exit is really a good deal.
The business would use the below pre money valuation that would help in determining the
amount in percentage that was invested by the owner. From the earlier compiled report over the
years, it has shown some several investments not worth the investment. The valuation would
require financial reports and thus this would make it not worth for evaluation any further. Based
on the analysis of the Unblock Africa financial statements, its exit value would be R66, 827, 619
after a period of at least 5 years. A south African bank wants to invest in the business with at
least R 2.8Milllion.

VENTURE FINANCE 7
Projected cash flows and terminal value
UnblockAfrica has below projected cash flows for the next five years:
Year 1 Year 2 Year 3 Year 4 Year 5
-R1,004,190 -R1,137,532 -R882,169 R10,870,647 R19,305,113
After the period of 5 years, the company terminal value would be calculated as
R54,677,143.

VENTURE FINANCE 8
References and sources of information
Blank, S. (2020). The startup owner's manual: The step-by-step guide for building a great
company. John Wiley & Sons.
Ferreira, S., & Morgado, P. (2016). O marketing relacional na banca: o papel do Home Banking
na criação de valor para o cliente.
Merker, C. K., & Peck, S. W. (2019). The Trustee Governance Guide: The Five Imperatives of
21st Century Investing. Springer.
Waddell, S. (2017). Societal learning and change: How governments, business and civil society
are creating solutions to complex multi-stakeholder problems. Routledge.