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Basically, Apex was attracted by the new technology and the unique business model of AccessLine. And, it was at the early stage and was not invested heavily by other professional investors. The positive cash flow was an important factor that makes Apex felt confident. It means that the market actually existed and customers understand the concept of technology, reducing the entry risk. With the domain knowledge in telecommunication, Apex concluded that this was an attractive investment.
When it comes to the risk of investment, the valuation of the firm was requested to be estimated at a high level. However, the market could not respond aggressively to meet the revenue forecasting or could not grow fast to meet the break even point. Both options make the investor and the investee in trouble.
In 1989, McCaw Cellular Communications invested a considerable fraction of initial capital for AccessLine.
At that time, McCaw established a strategic partnership with AccessLine. After that, in 1994, the first professional equity investment was executed by AccessLine’s CFO and Morgan Stanley. The amount of fund was $15. 5 million. Our team thinks that AccessLine did not consume a lot of capital at the early stage of company. The CEO possessed the core technology under the protection of patent, reducing the initial R&D cost. On top of that, AccessLine set up many strategic partnerships so that it was able to cut a huge amount of capital investment.
The capital participation of McCaw was also a good strategy. Investing in AccessLine, McCaw was actually locked in AccessLine in any aspects. From the viewpoint of AccessLine, it succeeded to acquire a big client and investor simultaneously.
Needless to say, Apex was renowned for an insightful investor who had brilliant track records in telecommunication sector. From this position, it might me possible for Apex to provide practical advices to AccessLine, including a major trend of industry, competition landscape, pricing strategy of other competitors, and demand of customers. The most valuable asset would be the relationship with potential customers, which can be linked to a sales activity.
To get the multiple = 3. 7 * Our team got the multiple value from comparable public companies’ situation * According to Exhibit 8, there is financial information about those companies. * We calculated ‘EV/Revenue’ of each company and averaged those figures.
Revenue of AccessLine in 1993 = $7,551,090
Exit value = $27,785,027
Key differences between Series A and Series B:
Issues Apex should concerns:
AccessLine suggested right to refuse converting preferred shares to common stock if IPO was completed under a certain value. But Apex require stronger protection of directly raising the price to support going public and right to refuse on future funding. Over all, the Series B for AccessLine is not that attractive in terms of financial terms. There is not enough high potential returns at too high level price and not enough warrant to protect investment.
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