Case assignment: Blue Haven Initiative (BHI)
Due Date: Sunday, December 18th Midnight (11:59PM)
Deliverables: Completed excel sheets and written answers to the questions (Word or PDF format only)
Total Points: 25 or 25%
· Excel template
· Basic VC method
· Video: I will post it later
This case examines Blue Haven Initiative (BHI), an impact investing fund and family office, and one of its investments, PEGAfrica (PEG). BHI founder Liesel Pritzker Simmons’ motivations for using her family wealth to start a family office focused on impact investing, as well as BHI’s approach and strategy, including direct and indirect investments, fund manager selection, total returns, sourcing and due diligence of direct investments, and other aspects. The case explores a specific investment decision in depth. In May 2017, Pritzker Simmons and BHI Director of Private Investments Lauren Cochran were considering whether to invest an additional $1 million in PEG’s upcoming $5 million Series B round, at a $20 million pre-money valuation. PEG offered pay-as-you-go (PAYG) financing plans that allowed customers to make small payments via mobile money to pay off financing for the solar equipment over time. The case details PEG’s business model, growth strategy, financial structure, and the landscape of investment capital in West Africa during the time of the case.
Perform a valuation analysis and consider the potential financial and impact returns of an early- stage social enterprise venture in an uncertain developing market
Assignment questions: Guidance
1. What do you think of the total portfolio approach? Is BHI’s way of defining and measuring impact appropriate? What are the associated costs and benefits?
a. PEG’s ability to build trusting relationships with customer households represents a broader opportunity to improve customer access to financing and grow local economy
b. PEG has already begun offering access to insurance and healthcare products, which may indicate commitment impact goals
c. PEG’s target market and business model align with BHI’s stated goals of investing in companies working with underserved segments and of increasing financial inclusion.
2. Is PEG’s business model and strategy sound? What are the drivers of its financial performance? How is the company driving impact? Assess the sustainability of its financial thesis. What are the risks?
a. PEG’s value proposition is strong. Saving customers $1,000 while paying off the financing in just 18 months
b. How the Ghanian and broader West African market?
c. PEG’s margin of 30% are strong and stand to improve further with the switch in suppliers
d. How is the relationship with customers and the potential to expand product offering using the same PAYG model. PEG is already started offering health insurance policies using mobile money to make premium payments.
e. Can PEG potentially offer PAYG financing for additional products?
f. Low capex business with recurring revenue stream
g. Expand on its differentiation: focusing on financing and colleting household date rather than focusing on the home solar technology
h. Issues like high level of working capital need due to paying SHS manufactures upfront but collecting revenue over time. Does it have any impact on margin
FCF is negative for the entire projection period through 2021.
i. Explain currency risk by purchasing inventory in US dollars while collecting revenue in Ghanaian cedi. How devaluation of cedi impact in margin
j. Address the constant need for capital given projected negative FCF. Are you concerned about sufficient source of funding?
k. Is there a concentration risk by being exposed to M-KOPA.
3. What is PEG’s enterprise value? Is the valuation of $20 million pre-money reasonable? Use the excel template provided to perform the following analysis
a. Comparable company analysis on revenues and EBITDA multiple
b. Discounted cash flow analysis. Use Blue have post series B % of 10% not 12% (I made a mistake). Net debt = Debt – Cash, additional cash should be added. Equity value increase by that amount. Use exit ownership if 12%. Use EBIT (2021)
c. Valuation based on “basic venture capital formula”
Use 30% IRR $1 million investment, apply an appropriate EBITDA multiple to terminal EBITDA and find the ownership.
4. Should BHI participate in Series B or not? Why? If so, should it provide the bridge, and in what form?
The term sheet for the bridge must protect the BHI
a. Talk about governance: board seat, right to approve/veto business decisions if certain performance thresholds are not first met
b. Exit rights: right to exit if PEG is not successful in bringing on additional investors. Right to preferential liquidation over later investors
c. Establish ESOP. High quality local sales people are essential to PEG’s success. The ESOP should incentivize them.
d. Should BHI negotiate for a $1 million investment based on a lower pre-money valuation, thereby increasing its stake. Should they include anti-dilution provisions to protect against any down round.
e. Should the bridge financing be structured as a convertible bond.
f. Should PEG develop and report on impact measures?
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