Executive Summary
NEWCO is a solar powered mobile charger designed to charge up to six mobile phones at a time and can continuously charge phones throughout the day. The product aims to ease the mobile phone charging challenges faced by the people who live without electricity in the rural areas of Kenya.
Current method of charging mobile phones in these rural areas requires individuals to travel an average of 10 miles to the nearest electrified town and charge their phones at the grid connected kiosks by paying about 15 Kenyan shillings (approx. US$ 0.17) per phone. In addition to the travel time, they need to wait for two hours to avail the service.
From our market research, we gathered that 75% of 39.8 million population of Kenya live in the rural areas, most of which is un-electrified. About 42% of these people have an active mobile SIM card (RIA 2007/2008 household survey). IEA in 2008 also reported that 587 million people in the Sub-Saharan Africa are without electricity and over the past seven years, there has been a tremendous growth in mobile phone usage in the rural areas of Kenya.
NEWCO directly addresses the charging problem encountered by this massively expanding mobile phone user community. End users of NEWCO are all the mobile phone users living in the un-electrified rural Kenya and the target market customers are the kiosk or shop owners located in or around these areas who would then provide the platform for the end users to easily charge their mobile phones locally on a regular basis. Our offering allows kiosk/ shop owners to generate incremental revenue by providing mobile phone charging services and our product can also be a route to entrepreneurship for small start-ups in the rural areas e.g. individuals running mobile phone charging businesses. Our offering also includes a micro finance loan facility option available to both the kiosk/shop owners to purchase our product.
Given the location of our target customers, our primary sales and distribution channel would be to through direct sales agents (i.e. feet on the street approach) with local language capabilities. These agents would sell our product directly to kiosk/shop owners or to individuals looking to start a small enterprise. A possible secondary sales and distribution channel would be through major retailers with strong regional presence.
In order to facilitate our distribution process, a hub and spoke model will be deployed in Kenya with hubs strategically located in all the eight provinces and each hub servicing all the rural areas (‘spokes’) within the province.
Based on our market size and opportunities in Kenya, our base case sales projection for the first year is 1000 units generating US$150,000 in revenues and we are seeking initial investment of US$170,000 to finance first year operations. We have already sold two functional prototypes and have received highly positive feedback.
Over five years of operations, NEWCO is expected to grow and capture a significant market share to generate a cumulative net income of US$ 3.5m. At that point, the business may be sold as a going concern to a bigger solar energy player like GO Solar Systems Limited or Powerpoint System (Ea) Ltd.
Alternatively, we can continue to grow the business (our preferred choice) by leveraging existing network and brand and expand outside Kenya to other Sub-Saharan African countries like Nigeria with more than 151 million people, 50% of which live in rural un-electrified areas.
Other potential growth channels include:
- Adding new product features such as capabilities to charge lamps etc.
- Partnership with mobile network operators
- Direct sales to government bodies (e.g. state or local government agencies) in order to promote young enterprise and alleviate poverty.
With the use of clean energy, NEWCO unit is making the world a better and cleaner place for current and future generations. NEWCO is not just another product; it encourages enterprise and helps alleviate poverty especially in the most impoverished regions by connecting rural areas to the mainstream and providing rural dwellers access to global wealth.
Newco Negotiation Game: Preparation Guidelines
Introduction
To prepare the game, it is necessary to familiarize yourself with the business plan. The best way to familiarize is to perform a “due diligence”. You do not have to hand in this due diligence. It is just a way of preparation.
A “due diligence” of the business plan means that you will analyse whether this is – according to you – an investable business or a business you as an entrepreneur would like to start with. If you identify weaknesses in the business, then you explain the weaknesses and creatively suggest how you would do it differently (in case you perform the due diligence from an entrepreneur’s point of view) or what needs to be changed for you in order to invest. There is no need for you to do additional market research. You can rely on the information given to you.
The questions below are a guideline to prepare the negotiation exercise. You do not have to answer all the questions but they help you to make a “due diligence” as entrepreneurs or different categories of financial investors. You first look at the “strength” of the business plan and then we think about how you would “ideally” change it (as entrepreneurs) or would like to see it being changed (as investors). You make this analysis in teams of two (investors or entrepreneurs) and finish it BEFORE the negotiation.
You prepare as a team a “one minute pitch” before the last class. If you are an entrepreneurial team, the pitch is for the investor teams. During the pitch, you address the main changes you made to the original business plan and you specify what you expect from an investor (in case you are an entrepreneurial team) or from the entrepreneurial team (in case you are an investor team). After the pitches, you receive a “template” of a term sheet, which contains the elements to be negotiated. You receive 90′ for the negotiation. You typically make during the pitches a top-3 of investors or entrepreneurial teams you want to negotiate with.
Questions to guide your due diligence
1A. Your judgement about the technology & appropriability position of the Newco business idea -.
- To what extent is the technology “new” for the incumbent industry?
- What are the different “forms of protection” which “Newco” can use? Do you agree with the adopted strategy?
- Do the entrepreneurs have “freedom to operate”?
- Does the financial plan allow for a protection strategy?
- Is there a clear development plan which shows timelines in the development of the product and necessary resources to accomplish tasks?
1B. Measures and alternatives we think about:
2A. Your judgement about the value chain – .
- Can Newco easily reach the end user for which it offers added value?
- Does it control or can it acquire the complementary assets needed to reach this end user?
- Is the downstream industry fragmented or concentrated among a few companies?
- Is the value proposition clear to you? 2B. Measures and alternatives uou propose:
ЗА. Your judgement about the business model – .
- What does the pricing model look like? Would you follow the same pricing strategy?
- How will Newco earn money? Do you believe this will work?
- Analyze the growth strategy of the company. Would you follow the same strategy? 3B. Measures and alternatives we think about:
4B. Your judgement about the market — .
- Did the entrepreneurs use a dual approach to calculate the market size (i.e. comparison method vs bottom up method)?
- Did they make a credible market segmentation according to you? Did they prioritize the market segments?
- How do you assess the market roll-out plan in the business plan?
- Is there an analysis of the market timing? Is it realistic?
4В. Measures and alternatives we think about, additional market information you have found or market information you have interpreted differently, other ways to approach the market, or other segments you picked, …
5A. Your judgement about the team – .
- Do you think this team has the necessary skills to successfully launch a business? To assess this, make competence profiles. Are they complete or do you find any gaps? Who knows the technology? Who knows the “downstream business”? Who has managerial talents? Who knows the end user?
- Do the different team members have a specific function in the management team?
- How do you assess the personality of the different team members? Do they demonstrate
the necessary entrepreneurial experience? Who will be the “organizer”, the “project
killer”, the “visionary” and the “supportireguy”?________ - Do you think you need to go on the job market to look for other team members? In this case, you may want to talk to the managers who are on the job market.
- Do you think the budget foreseen in the financial plan is sufficient to build the team to commercialize the technology?
5B. Measures and alternatives we think about – what is your ideal team for this company?
6A. Your judgement about the financials – .
- Are the assumptions realistic?
- Revenues:
- Costs:
- Investments:
- Financial commitments:
- Is there a realistic view regarding the amount of finance needed for the venture and about the moment at which the finance is needed?
- Is there a realistic view regarding what the valuation of the venture is?
6B. Measures and alternatives we think about:
7. Guidelines to think about Deal Structure
1. Provide an overview of the way you initially would distribute the shares, before external investment.
| 1 | 2 | 3 | 4 | Total | |
| Capital shares | |||||
| Founder shares | |||||
| Technology shares | |||||
| Management shares |
- Comment:
2. Provide an overview of the steps you have taken to close a deal:
- What was the starting position, what kind of a deal did you have in mind? What kind of a deal did you finally reach? Was it a lot different than expected?
- If you did not reach a deal, what do you think were the main reasons?
3. Write down your shareholders agreement:
- Amount of the capital increase
- Final distribution of shares
- Categories of shares
- Board room voting power
Special conditions: stand still, push or pull options, …
Group Assignment
Assignment Questions & Marking Criteria
Due diligence Case “NEWCO”: Students will work in teams of 2 and the team will be allocated a profile of an investor or entrepreneur.
Task 1. Group Presentation. The students are asked to prepare a one-minute elevator pitch. The pitch will reflect their assigned role either as entrepreneurs or as investors. Both of the team members will have to pitch.
Criteria for Assessment (You are required to demonstrate the following skills in this assessment):
- Time Management Knowledge and understanding
- Presentation style and skills (clarity, fluency, pronunciation)
- Handling questions
- Insuring that the audience is attentive and listening.
- Use of Visual Aids.
Task 2. Negotiation Exercise
The entrepreneurs and investors will negotiate during the break-out session to close a deal. Investors can invest in more than one entrepreneur, as well as entrepreneurs can seek more than one investors.
Criteria for Assessment (You are required to demonstrate the following skills in this assessment):
- Negotiation process
- Final term sheet.
Task 3. Due Diligence
The students are asked to make a due diligence of the “NEWCO” business plan, either as an investor or an entrepreneur, as assigned during the course. The Due Diligence should discuss about the strength and weaknesses of the NEWCO business plan.
Due Diligence Structure to follow:
- Statement of whether you are investor or entrepreneur.
- Strengths and Weaknesses of NEWCO business plan.
- See the part “NewCo Negotiation Game: Preparation Guidelines” for key questions to ask. These questions are given as an example. Students do not have to ask all the questions in the guideline, and other questions can be asked as well.
- Proposal of how the business plan could be improved.
- From the perspective of an investor or entrepreneur.
Criteria for Assessment (You are required to demonstrate the following skills in this assessment):
Grades will be based on the extend the group has addressed the strengths and the weaknesses in following issues:
- Technology: Students should discuss about, to what extent the technology is “new” for the incumbent industry; what are the different “forms of protection” which NEWCO can use; do the entrepreneurs have the “freedom to operate”; or does the financial plan allow a protection strategy?
- Value Chain: Students should discuss about whether NEWCO could easily reach the end-user for which it offers added value; whether it controls the complementary assets needed to reach this end-user; how the downstream industry is structured; and the value proposition.
- Business Model: Students should discuss about what the pricing model looks like; how NEWCO will earn money; and the growth strategy of the company.
- Market: Students should discuss about the market size; the market segmentation; and analyze the market timing.
- Team: Students should discuss about the team skills; they should make competency profiles and identify skill gaps.
- Financial: Students should analyze whether the financial assumptions are realistic, and evaluate the venture’s valuation.
In addition to the above issues, students should also pay attention to the following:
- Overall Presentation and Style, Logical stmcturing of materials Clarity of description
- Identification of appropriate concepts and theories
- Demonstration of an understanding of such concepts through their application
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