Individual case study 75%
The assignment
Your task is to produce a consultancy report for both Midas Touch Technologies (MMT) and Victoria Capital Investment Ltd (VCI). MMT is considering whether to approach the venture capital firm for funding and VCI is considering whether to invest in MMT. Your report will inform their decisions.
Using the information provide in the pages below, your report should:
Part A – For MMT
Make suggestions about the type of funding that would be most suitable by:
• Identifying the advantages and disadvantages of approaching the venture capital firm for the full amount of equity funding. (20 marks)
• Identifying an alternative funding strategy for MTT, including a discussion of the advantages and disadvantages. (20 marks)
Part B – For VCI
Make recommendations whether they should invest in the business by
• Evaluating the market potential of MMT (20 marks)
• Assessing the financial status and funding demand of MMT (20 marks)
Your recommendations may be based on the information provided, but should also be backed up by evidence taken from academic literature, industry reports, articles, reputable websites etc. Please ensure that you reference your evidence using Harvard style referencing (use Cite Them Right online to check referencing is accurate – available via the Library).
Additional marks
Referencing – 10 marks
English, spelling and grammar – 5 marks
Presentation and layout – 5 marks
Word limit
The report should be 3000 words (-10%) in length.
Referencing
Please include references to academic theories discussed during the course. The
references in the body of text will be included in the word count, but the references
section at the end of the document will not.
The Case
Victoria Capital Investment Ltd (VCI) is a London-based venture capitalist firm, typically investing in early stage technology businesses.
Midas Touch Technology Ltd (MTT) produces high-end smart watches using premium materials and third party software. MTT intend to approach VCI for an investment of £10 million. To date, MTT have developed the product fully. The product has pending worldwide patents and the manufacturing is outsourced to a company in Hong Kong.
MTT is owned by Yixing Han (28) and David Green (39) who met when they worked at a multinational technology organisation. Working together in international accounts management, they identified the growing market for wearable technology.
They remained with their employer for the first three months, but left to devote their full attention to MTT after generating a lot of early interest in their first product. The team are currently geographically dispersed, with Yixing based in London and David in Cardiff, Wales.
MTT’s owners have invested £50K, secured a £400K long-term loan from the bank and raised £300K using crowd funding.
In 2015, MTT achieved revenue of £936K in the first year of trading through sales of their flagship product, although the company posted a £674K loss. In 2016, MTT plan to develop a new product, bring manufacturing in house and launch global marketing campaigns. The proposed £10 million investment will be allocated as
follows:
• £4.5M manufacturing plant and tooling costs
• £3M sales and marketing campaign
• £2.5M new product development
Market research suggests that global smart watch sales will be £1,740 million in 2015; the industry is expected to grow rapidly to £9,830 million in 2019.
MTT produced a 6 year income statement, and a 6 year cash flow statement seen below (Table 1) and (Table 2), note that the 2015 are the actual year end results.
They have assumed that they will receive the £10 million investment in January 2016.
Table 1: Midas Touch Technology Ltd 6 year income statement (£K)
| Year | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| Sales Revenue | 936 | 2,898 | 7,728 | 15,456 | 32,472 | 62,400 |
| Direct Material Cost Direct Labour Production Overheads Depreciation | 634 221 197 0 | 1,725 593 538 0 | 2,705 1,352 1,030 500 | 5,152 2,640 1,996 500 | 10,148 5,412 4,059 500 | 18,720 10,140 7,540 500 |
| Total Cost Of Sales | 1,051 | 2,857 | 5,588 | 10,289 | 20,119 | 36,900 |
| Gross Margin | (115) | 41 | 2,140 | 5,167 | 12,354 | 25,500 |
| Sales and Admin Costs Research and Development Costs Other Operating Costs | 44 440 35 | 3,000 2,500 45 | 1,800 800 200 | 2,000 900 420 | 3,000 3,400 740 | 6,000 4,800 1,150 |
| Operating Profit | (634) | (5,504) | (660) | 1,847 | 5,214 | 13,550 |
| Finance Cost Corporation Tax | 40 | 40 | 40 | 40 361 | 40 1,035 | 40 2,702 |
| Profit After Tax | (674) | (5,544) | (700) | 1,446 | 4,139 | 10,808 |
Table 2: Midas Touch Technology Ltd 6 year cashflow statement (£K)
| Year | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| Operating Activities Net Profit (PAT) Adjustments for: Depreciation Working capital | (674) 0 (23) | (5,544) 0 | (700) 500 | 1,446 500 | 4,139 500 | 10,808 500 |
| Net cash from operating activit | ies (697) | (5,544) | (200) | 1,946 | 4,639 | 11,308 |
| Investing Activities Purchase of PPE (Tooling) | 0 | (4,500) | ||||
| Net cash from investing activiti | es 0 | (4,500) | 0 | 0 | 0 | 0 |
| Financing Activities Bank Loan Owner Investment Crowd Funding Investment Venture Capital Investment | 400 50 300 | 10,000 | ||||
| Net cash from financing activiti | es 750 | 10,000 | 0 | 0 | 0 | 0 |