FINANCING NEW TECHNOLOGY VENTURES
CASE STUDY SOLUTION
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pl
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SYNOPSIS
emmtrix Technologies GmbH (emmtrix) was a spinoff company from the Karlsruhe Institute of Technology
Sa
(KIT), a leading German university, and a result of an excellent-rated research project. At the end of January
2019, the emmtrix founders were preparing for a meeting with investment managers of a venture capital
(VC) firm in Karlsruhe, Germany. After previous meetings with the investors in which the business concept
and technology had been the focus, the main point of the upcoming meeting was to present the start-up’s
n
fundraising goals. The founders were expected to express how much money they intended to raise and at
which valuation of the company. To that end, the start-up team wanted to prepare information on the
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company’s financial forecasts for the next five years, the fundraising amount to be raised in the initial
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The Case Solution Starts From page 5
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ASSIGNMENT QUESTIONS
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1. Using the information provided in the exercise, develop a financial projection (i.e., a forecast of a profit
and loss [P&L] statement) on a yearly basis for the next five years (i.e., 2019–2023). Also show your
So
results graphically.
2. Based on your financial projections, determine emmtrix’s financing needs.
3. For negotiations with the investors, prepare a valuation of emmtrix. First, consider two (or three)
different methods for new venture valuation. Next, determine which methods are most suitable in this
situation. Finally, apply the chosen methods, including sensitivity analyses, and show your results
graphically in a football field chart.
4. With regard to your company valuation, identify at least two points to discuss with the investment
managers. Explain how you would respond to these points.
5. For the upcoming meeting with the venture capitalists, use information from the exercise to prepare
three to five non-financial determinants that may increase the chances for a positive investment
decision.
The Case Solution Starts From page 5
,2. Based on your financial projections, determine Emmtrix’s financing needs.
How much money does a venture need? When is the money needed? How long will the money last? These
are vital questions to discuss with students, as they arise not only in early stages, such as in this exercise,
but also at any development stage of a company.
e
The (projected) P&L statement and cash flow statement provide insight into the above questions. The
pl
simplest approach is to look at the negative operating profits (i.e., the EBIT) of the planning period in the
P&L statement and to adjust the EBIT for (free) cash flow considerations to derive the financing need of
m
the start-up company. The free cash flow is defined as follows:
Sa
Element Location
EBIT P&L statement
− tax exposure P&L statement
+ non-cash expense (depreciation, amortization, P&L statement
and other)
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− increase in working capital (current assets – Balance sheet: working capital
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current liabilities)
− capital expenditures Balance sheet: Property, plant,
and equipment
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= free cash flow
So
For the free cash flow calculations over the planning horizon in this exercise, please see Exhibit TN-4.
Based on the numbers derived from Exhibit TN-4, the financing amount needed by emmtrix is calculated
as follows:
Free cash flow Amount (€1) Comment
The Case Solution Starts From page 5
, EXHIBIT 2: FINANCIAL PROJECTION (YEARLY BASIS)
PROFIT & LOSS STATEMENT
REVENUES 2018 2019 2020 2021 2022 2023
ePS licensing € 66,450 € 254,928 € 653,400 € 1,261,170 € 2,631,200 € 4,031,250
Number of new customers [sum] 3 6 10 18 26 30
Number of new customers per salesperson [associate] 0 0 4 12 20 24
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Number of new customers per salesperson [senior] 3 6 6 6 6 6
pl
Number of customers accumulated 3 9 19 37 63 93
Number of licences sold 3 12 30 54 104 150
m
Number of licences sold accumulated 3 15 45 99 203 353
eCG licensing € 5,000 € 10,000 € 37,600 € 75,200 € 162,000 € 189,000
Sa
n
tio
lu
So
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
emmtrix Technologies GmbH (emmtrix) was a spinoff company from the Karlsruhe Institute of Technology
Sa
(KIT), a leading German university, and a result of an excellent-rated research project. At the end of January
2019, the emmtrix founders were preparing for a meeting with investment managers of a venture capital
(VC) firm in Karlsruhe, Germany. After previous meetings with the investors in which the business concept
and technology had been the focus, the main point of the upcoming meeting was to present the start-up’s
n
fundraising goals. The founders were expected to express how much money they intended to raise and at
which valuation of the company. To that end, the start-up team wanted to prepare information on the
tio
company’s financial forecasts for the next five years, the fundraising amount to be raised in the initial
lu
So
The Case Solution Starts From page 5
, e
pl
m
Sa
n
tio
ASSIGNMENT QUESTIONS
lu
1. Using the information provided in the exercise, develop a financial projection (i.e., a forecast of a profit
and loss [P&L] statement) on a yearly basis for the next five years (i.e., 2019–2023). Also show your
So
results graphically.
2. Based on your financial projections, determine emmtrix’s financing needs.
3. For negotiations with the investors, prepare a valuation of emmtrix. First, consider two (or three)
different methods for new venture valuation. Next, determine which methods are most suitable in this
situation. Finally, apply the chosen methods, including sensitivity analyses, and show your results
graphically in a football field chart.
4. With regard to your company valuation, identify at least two points to discuss with the investment
managers. Explain how you would respond to these points.
5. For the upcoming meeting with the venture capitalists, use information from the exercise to prepare
three to five non-financial determinants that may increase the chances for a positive investment
decision.
The Case Solution Starts From page 5
,2. Based on your financial projections, determine Emmtrix’s financing needs.
How much money does a venture need? When is the money needed? How long will the money last? These
are vital questions to discuss with students, as they arise not only in early stages, such as in this exercise,
but also at any development stage of a company.
e
The (projected) P&L statement and cash flow statement provide insight into the above questions. The
pl
simplest approach is to look at the negative operating profits (i.e., the EBIT) of the planning period in the
P&L statement and to adjust the EBIT for (free) cash flow considerations to derive the financing need of
m
the start-up company. The free cash flow is defined as follows:
Sa
Element Location
EBIT P&L statement
− tax exposure P&L statement
+ non-cash expense (depreciation, amortization, P&L statement
and other)
n
− increase in working capital (current assets – Balance sheet: working capital
tio
current liabilities)
− capital expenditures Balance sheet: Property, plant,
and equipment
lu
= free cash flow
So
For the free cash flow calculations over the planning horizon in this exercise, please see Exhibit TN-4.
Based on the numbers derived from Exhibit TN-4, the financing amount needed by emmtrix is calculated
as follows:
Free cash flow Amount (€1) Comment
The Case Solution Starts From page 5
, EXHIBIT 2: FINANCIAL PROJECTION (YEARLY BASIS)
PROFIT & LOSS STATEMENT
REVENUES 2018 2019 2020 2021 2022 2023
ePS licensing € 66,450 € 254,928 € 653,400 € 1,261,170 € 2,631,200 € 4,031,250
Number of new customers [sum] 3 6 10 18 26 30
Number of new customers per salesperson [associate] 0 0 4 12 20 24
e
Number of new customers per salesperson [senior] 3 6 6 6 6 6
pl
Number of customers accumulated 3 9 19 37 63 93
Number of licences sold 3 12 30 54 104 150
m
Number of licences sold accumulated 3 15 45 99 203 353
eCG licensing € 5,000 € 10,000 € 37,600 € 75,200 € 162,000 € 189,000
Sa
n
tio
lu
So
