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Over the lifecycle of an investment relationship
with Kalori, an Investee can expect a number of significant
events to
occur. To assist your preparation, we summarise some key
points to be addressed at each stage.
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An initial meeting is to give both Investee and
Kalori an opportunity to meet the specific key individuals
involved, and will generally discuss the following topics.
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Management Team’s experience & history |
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Fundamental business model of Investee company |
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Product / Service concept(s) & target market segment(s) |
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Current Investee opportunities & areas of weakness |
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Experience of Kalori in your target market space |
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Style & expectations of Kalori, in terms of investment
size and basic |
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considerations |
The
key outcome from this exercise is to assess the match between
Investee & Investor. |
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Once a determination has been made that the Investee
senses it can work with Kalori, and we sense the business has
genuine investment potential and a fit with our basic investment
criteria, then it is time to review a written Business Plan.
“A strategic Plan doesn’t provide growth,
opportunities do.
But opportunities are best recognised
if you can quantify them,
and measure them in the matrix
of a plan you have done.
The
plans never work out,
of course, exactly as they are done
– they
are just a framework to recognise and exercise a
type
of
entrepreneurial response when you see the opportunity
there to do it.”
Roger
Corbett, Managing Director of Woolworth's Limited.
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A strong Business Plan will address at least
the following topics within 25 pages, plus attachments. Slideshow
style is preferred, where possible.
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Executive Summary (2 pages) with table of
key financials |
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Brief history of the Enterprise to date |
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Management team profiles |
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Discussion of revenue components & business model |
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Discussion of operating structure, expenses & capital
requirements |
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Financial history (actual) & projections for 2 years |
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Review of competitors and substitutes |
The key outcome from this
is a decision to proceed to Informal Due Diligence, which
generally entails a significant
investment of time & resources by Kalori. |
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The strength of a venture will ultimately hinge
on the following:
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Management
Team. The experience level of the management
team needs to be aligned with the key success factors
for the business, with particular emphasis on sales
skills and technology competence. What milestones have
already been achieved? What unique relationships might
provide a risk reduction, or cement sales opportunities?
Product or Service
Offering. We also explore product design, customer
relationships, and sales contract terms; these terms
are then contrasted against competitor positioning.
The fundamental value proposition is relative to the
most likely purchase-decision criteria for customer
segments; thus, quite a bit of time is spent to understand
customers, including possible customer/prospect visits.
How long is the sales cycle? Can organic growth drive
the business, or do you need channel relationships
with others to drive revenues more quickly?
Financial Planning. We
seek to drill down and test key assumptions of the Business
Plan. In particular, assessing areas of sensitivity in
the financial model helps to understand key success factors
for Management, and determine operational priorities.
How capital intensive is it? If growth is twice forecast,
what results does this have on capital requirements?
What Gross Margins (revenues less direct product / service
costs) are forecast? Do you have an estimate for revenue
to marketing spend, or cost of account acquisition? |
The primary outcome from this process is
the decision to structure an offer, and the determination of
basic
valuation parameters.
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As Investee & Kalori come closer towards
an Investment Agreement, Kalori may table a conditional Offer
to Invest, framed as a summary “Term Sheet.” These
terms generally include:
With an acceptance and agreement to the Offer,
the parties can enter into the final stage of the Investment
cycle. |
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In a final phase before an investment can be
consummated, a formal review must be conducted addressing the
following items:
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Accuracy of information provided |
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Due authorisations of Officers & Directors |
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Group legal structure (Company & Subsidiaries) |
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Business and asset details |
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Accounts & financial position |
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Taxation matters outstanding |
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Real property |
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Intellectual property |
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Position of contractors, employees |
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Superannuation position |
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Compliance with law & absence of litigation |
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Insurance & claims |
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Delegations & Offers |
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Profit sharing & finders fees (if applicable) |
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Constitution of Company |
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Draft “Share Subscription Agreement” |
The result of this phase is an agreement for
legal documentation to be drawn up, and the executable steps
to give effect to the desired & agreed terms. |
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The execution of the legal documentation generally
includes amendments to the Company Constitution (agreed to
by current shareholders), and a Share
Subscription Agreement (agreed to by new shareholders / Kalori). There may also be
a Shareholder’s Agreement which needs to be agreed, governing
such issues as may not be covered in the Company Constitution.
Upon signing of the legal documentation (the “Close”),
initial funds are paid into an agreed bank account; the full
amount agreed to is usually paid in several installments on
a draw down basis, as the Company progresses with its agreed
milestones. This may take place over a period of time (eg.
12-18 months). |
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Periodically, Kalori may recommend an Investee
go through a workshop process to systematically work through
significant strategy issues. This is usually done off site,
and may be guided by Port Jackson Partners, McKinsey, Boston
Consulting Group, Price Waterhouse Coopers or others as may
be agreed.
In addition, Kalori will workshop with an Investee
on operational issues such as ramp up programs. It can be helpful
to include in these reviews an expert in the field to assess
the adequacy of capital spending plans or marketing resources.
In our experience, these can easily be underestimated. |
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All investors require a long-term exit
strategy. The evidence suggests these generally result in
trade sales (75%) or Initial Public Offerings (25%). The
principals of Kalori have a successful track record in both
of these key areas, and may be a strong partner / investor
for a business with an early liquidity opportunity. However,
Kalori is generally a long-term investor and takes a 3-5
year view for most investments to reach maturity and ultimate
exits. |
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