Translocate, to fund or not to fund : challenges in funding an emerging market start-up

Abstract

SUBJECT AREA : Financial management – Specifically start-up valuations. STUDY LEVEL/APPLICABILITY : Honours or masters level (professional or academic). CASE OVERVIEW : The case is around a tech start-up in the informal transport market in South Africa, that has obtained some government funding and developed a working SaaS. However, requires funding to expand and grow. Informal transport is significant in emerging and developing markets and the product is portable internationally. In South Africa, two listed companies (US and SA) were started with similar concepts in Logistics and private client market and are now global in 124 and 24 countries. Management of the venture capital firm are senior and experienced and have invested years and funding into this company, and while willing to offer equity had quite a high value in mind, the venture capital company (with an impact mandate) needs to decide whether to fund the start-up and negotiate a value. EXPECTED LEARNING OUTCOMES : Characteristics of a successful start-up are formulating an appropriate discount rate, using real world data; performing a DCF and relative valuations given limited information; scenario analysis and sensitivity analysis; and the importance of negotiating (understanding managements side). COMPLEXITY ACADEMIC LEVEL : This case was written for use in financial management classes in either an academic full-time student (final year undergraduate/bachelor) or a postgraduate program with working students/professional (MBA) program level. SUBJECT CODE : CSS: 1: Accounting and finance.