Valuing Project Achieve

Introduction by and bywards years as a t for each whizzer and principal frust prized by the inability to effectively track school and student progress, Stacey Boyd and HBS classmate Mandy lee founded suggest achieve, an information management ashes for schools. In a speedily changing fabrication with fast-moving competitors, dispatch pass on aimed to use pass bying-edge technology to let down the workload of teachers and administrators while simultaneously keeping p bents and students aw be of performance. In an go about to raise capital from an array of investors, Boyd needed to assess the pie-eyeds observe before moving forth. watch accomplishs rivalrous Advantage_ job compass hopes to differentiate itself from its competitors via its emphasis on a solely web-establish yield and its founders knowledge of schools and teachers, its two main militant advantages. As the startle mover amongst entirely web-based products, Project strike hopes to throw signifi g ive the sackt market share before imitations of its products appear. Being entirely web-based, the system was created in a standardized manner to allow numerous schools to seduce the capability to use the system and get support simultaneously. In short, the firms products are especially scalable.The company leave also draw in tremendous amounts of information on students, creating yet another effectiveness levy revenue stream from advertisers and content providers. Potentially, Project Achieve could evolve into the nerve halfway for schools. With high switching be, such a position could be loving to content providers and other potential acquirers. Compared to NCSs SASI and ABACUS, Project Achieve has a more than integrated web-based design and virtually importantly, is cheaper. Additionally, Project Achieve features an easier usher and user-friendly interface compared to similar systems like IMSeries.With the potential to be utilize by administrators, teachers, parent s, and students, Project Achieve could possibly become the platform for surmount learning and communication among the aforementi superstard parties. This partly rests upon Boyds ability to bore the technology needs in academia. Luckily, Boyds knowledge of the space is one of the firms competitive advantages. Unfortunately, the companys technological advantages allow probably be short-lived after the product hits the market, since competitors are probable to imitate Project Achieve and also move to ntirely web-based products. Additionally, the firms marketing strategy depends heavily on the support of governors, but it is self-styled whether the firm has the necessary lobbying resources to shoot their support. We also question the firms ability to entice schools to buy its fee-based program without a sales describe. like Company Analysis Based on Exhibit 3 from the case, Project Achieve has nine public companies that can be indentified as parallel. Project Achieves closest c omparable companies are Click2learn. com, Learn2. com, and Vcampus.These companies are most similar to Project Achieve in that they are all in the first place online learning and training courseware. In addition, these three companies are relatively upstart in the marketplace with the oldest company, Learn2. com, going public mid-year 1994. Finally, these three companies prepare infinitesimal to no debt, similar to Project Achieves reliance on internal funding. Boyd can use her research on comparable companies in her military rank of Project Achieve to calculate Project Achieves beta. The comparable companies could also be used in a multiples-based valuation analysis.Unfortunately we dont set about a complete implant of data for each firms number of subscribers, otherwise we could have done a valuation based on measure per subscriber. _Project Achieves Discount Rate_ Boyd should use a send away rate of 19. 0% in her valuation of Project Achieve. This rate was determined us ing Achieves three most comparable companies, Click2learn. com, Learn2. com, and Vcampus. These comparables equity betas were determined based on the movement of the market and company returns since their inception. We unlevered these betas and took the median to estimate an industry beta.We assumed an asset beta of 1. 15 (the median asset beta of the three comparable companies) and a debt beta of 0 (with no come to bearing debt) for Project Achieve. Using the 30-year treasury rate (5. 94%) as the risk-free rate because of Project Achieves pass judgment sprightliness and a historical 7. 0% market risk pension, we calculated Project Achieves discount rate at 14. 0%. This discount rate treasures Achieve as a public company, comparable to its public sound reflectionparts. As a non-public start-up, however, Project Achieve is far more risky than the more established comparables discussed above.Thus, we added a 5% start-up risk premium to reach an appropriate 19% discount rate for t he valuation of Project Achieve. (See Exhibit 1) Valuing Project Achieve In order to visualise the value provided by each customer type to Project Achieve, we must first identify the breakdown of customers based on the probabilities given in the case, and thus forecast the cash flows associated with each type of customer. To determine the probability of a generic caned school falling into any customer category, we created a last tree. Exhibit 2) Per our analysis, at that place are five end user states interminable Achieve get users, two-year users of Achieve Express, incessant users of Achieve Express and Achieve Logic, two-year users of Achieve Express and Achieve Logic, and targeted schools that didnt oppose all with varying probabilities. Now armed with the percentage breakdown of customers expected for Project Achieve, to determine the value of each customer we must forecast the cash flows associated with each type of customer. Exhibit 3) All of the costs and revenues associated with each type of customer are detailed in Exhibit 3. later on calculating a WACC of 19. 00% and forecasting cash flows for each type of customer, it is aristocratical to find the net present value of each customer. Not surprisingly, two-year Express users are the only loss manipulaters for the firm, with a value of -$386. 63 per two-year Express user. Perpetual Express users, two-year Logic users, and perpetual Logic users are each worth $1,315. 79, $15,588. 16, and $44,659. 4 respectively. (Exhibit 3) Now that we have calculated the value per customer for all of our customer classifications (Exhibit 3), we can accommodate the probabilities found in our close tree (Exhibit 2) to find the overall value per targeted customer. Doing so, we find that each targeted customer has a value of $5,102. 49. (Exhibit 4) Going one step farther, we matched the value per targeted customer with the forecasted number of customers targeted to find the total value of all of Project Ac hieves targeted customers.Discounted at WACC (19. 0%), all of the firms targeted customers are cumulatively worth $78,805,398. (Exhibit 5) Using the DCF method, the after tax revenue value of Project Achieve is $11,991,608. (Exhibit 5) The valuation of Project Achieve is extremely risky considering the dependency of the companys cash flows on customer acquisition and retention. In addition, Project Achieves tax rate along with its carry-forward loss of $1 million will significantly affect its value. The assumptions used in valuing Project Achieve areTotal estimated overhead costs 1999-2000 are $6,524,826 (case Table A) Total costs increase 20% per year for 4 years and after the one-fifth year costs rise in line with subscription base Revenues raise 2% annually after year 5 (rate of increase for target schools) No inflation taken into account on growth rate because downward pressure on prices with new market entrants will counter inflation $1 million loss incurred to date (will ca rry forward in tax burden and increase the value of Achieve) 35% tax rate (ignoring depreciation) The Role of InvestorsGiven Project Achieves position as an early- gift start-up, its lack of a sales force, and its need to develop relationships with policy-making authorities and schools, the firm requires investors that understand start-ups and can help market its products. saint investors like Daniel Eliot dont seem to fulfill either of these requirements. danger capitalists deeply understand start up businesses and could provide a giving chunk of capital, but they dont know schools, their valuation is refuse than Jostens, and they would be no help in gaining traction for Project Achieves products.Additionally, a VC firm would likely require much more control than the other types of investors. Strategic investors are the most compelling. A strategic investor may wish to complement its own growth by integrate Project Achieves new technology into its business. Since strategic in vestors are almost always in the same industry as their targets, they can often help with industry contacts and business expertise. For example, Jostens knows schools, has a sales force in the field calling on schools, and offers the best valuation.We would go with Jostens now, possibly bringing in a venture capitalist in a later round. We would also keep in mind the possibility of selling out to Jostens down the road if Project Achieves products gain traction. Potential investors have widely varying estimates of the value of Project Achieve because our valuation has many aspects. Primarily, different investors may have different forecasts of product adoption rates. As discussed earlier in the paper, we feel that Boyd is being likewise optimistic about the probability of schools purchasing her fee-based program without prompting from a sales force.Since our valuation is entirely dependent on the probabilities displayed in our decision tree (Exhibit 2), if different investors had different calculations for these probabilities, their valuations would be drastically different. Boyd needs to make sure she is realistic in her forecasts of product adoption, for they will set the stage for valuation discussions. Computing the explicit valuation, whether pre-money or post-money, is simple and unlikely to lead to disagreement. The valuations may differ, however, based on how big an investment is made.Since the three potential investors, Daniel Eliot, Jostens, and the angel investors, were all offering different amounts of capital, it makes sense that their valuations would differ slightly. Quantifying the implicit in(predicate) valuation is what makes valuing the firm particularly problematic. The implicit valuation includes valuing warrants, liquidation preferences, and dividends. Additionally, there are non-quantifiable valuation factors such as pre-emptive rights and anti-dilution provisions. To have a crack deal, it is important for Boyd to present Project Ach ieves business opportunities good and disclose all useful information.