Valuation Methods, Free Cash Flows, And Competitive Advantage Periods

EBITDA and Market Value of Invested Capital

Discuss about the Entrepreneurship for Investment of Venture Capitalist.

From the decline in sales growth rate the intrinsic value of equity mainly increases, while the increment in sales growth rate it declines. In addition, the sensitivity analysis indicates that revenue growth rate needs to be adequate for improving the intrinsic value of equity.

Rapid growing companies such as Hotmail seek venture capital rather than bank loans, as venture capital does not who’s the company to pay annual interest on the investment amount.  However, taking a loan from Bank would eventually increase pressure on Rapid growing business, as the profits will be eroded from the interest payments conducted to the bank. Moreover, using savings fund in the capital venture is highly risk, as rapid growing companies would consume the savings capital fast. Therefore, rapid growing companies relatively use venture capital to support their capital requirements, as they need investor for the organization who believe in the objective and future scope of the company (Kirzner 2015).

From the evaluation of above table, changes in ownership can be identified as the main reason, which motivated the founders of JavaSoft to accept original investments from DFJ, while rejecting the proposal of Asian investor. After the inclusion of venture capital from DFJ, the owners share in the company was at 32%, which was highest in percentage, while after allowing the investment from Asian investors the change in percentage of ownership was not favorable for the JavaSoft founders. This was the main reason behind the selection of DFJ as the venture capital and ignoring the proposal of Asian investors (Dees 2017).

The inclusion of the provision for the founder’s father to invest $15,000 in the company is proposed by DFJ on the grounds of trust that fathers have on son’s project. This provision was mainly conducted to increase trust of DFJ on the idea and business of JavaSoft.

The main advantages of funding or a young firm like Hotmail in stages rather than all at one is to identifying the progress that is made by the organization. The funds provided in stages would eventually secure investment of venture capitalist, while increasing the number of ownership portion in organization. Conducting investments all at once is a risky endeavor, which might backfire if the company is not able to achieve targeted goals (Drucker 2014).

The main reason behind the buying of Hotmail by Microsoft was to counter the move of Yahoo one of the leading competitors in the industry. Yahoo had previously bought 11 Corporation which were the biggest competitor of Hotmail that allowed the organization to acquire the market with additional subscribers (Brenkert 2017). However, Microsoft bought Hotmail the biggest and foremost performer and market leader in this segment to reduce the influence of Yahoo on the market. this move mainly costed Microsoft 395 million and generated 9.5 million subscribers for the organization.

References:

Kirzner, I.M., 2015. Competition and entrepreneurship. University of Chicago press.

Dees, J.G., 2017. 1 The Meaning of Social Entrepreneurship. In Case Studies in Social Entrepreneurship and Sustainability(pp. 34-42). Routledge.

Drucker, P., 2014. Innovation and entrepreneurship. Routledge.

Brenkert, G.G., 2017. Entrepreneurship, ethics, and the good society. In Entrepreneurship (pp. 85-128). Routledge.