VC Group Assignment FINAL COPY - KSM Consulting Exponential...

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1 | P a g e KSM Consulting Exponential Interactive, Inc. Exponential Interactive Inc. FUNDING PROPOSAL FINS3623 Kieran Maroon z3374058 Michelle Chow z3374861 Shirin Ramadan z3374414
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2 KSM Consulting Exponential Interactive, Inc. TABLE OF CONTENTS 1 EXECUTIVE SUMMARY .................................................................................................... 3 2 BACKGROUND ................................................................................................................. 4 2.1 Business & Product Description ........................................................................................... 4 2.2 Current Owners & Management Team ................................................................................ 4 2.2.1 Remuneration ....................................................................................................................... 6 2.3 Production & Operational Strategy ...................................................................................... 6 2.3.1 Key Drivers of Value .............................................................................................................. 8 2.4 Market & Industry Analysis ................................................................................................. 8 2.5 SWOT Analysis .................................................................................................................... 9 2.6 Use of Funds ..................................................................................................................... 10 2.7 Growth Strategy ............................................................................................................... 11 3 FINANCIAL ANALYSIS & VALUATION .............................................................................. 11 3.1 Peer Analysis .................................................................................................................... 11 3.2 Key Valuation Assumptions ............................................................................................... 13 3.3 Comparables Approach Valuation ..................................................................................... 15 3.4 DCF Valuation ................................................................................................................... 16 3.5 Forecasting Analysis .......................................................................................................... 17 4 The Deal ........................................................................................................................ 17 4.1 Pre money and Post money valuations .............................................................................. 17 4.2 Provisions ......................................................................................................................... 18 4.3 Proposed exit strategies .................................................................................................... 19 5 TERM SHEET: EXPONENTIAL INTERACTIVE, INC. ............................................................. 20 6 CONCLUSION ................................................................................................................. 22 7 APPENDIX I ................................................................................................................... 23 7.1 Weighted Average Cost of Capital Calculation .................................................................... 23 7.2 Sensitivity Analysis ............................................................................................................ 24 7.3 Dilution and share price impact ......................................................................................... 24 8 Bibliography .................................................................................................................. 25
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3 | P a g e KSM Consulting Exponential Interactive, Inc. 1 EXECUTIVE SUMMARY This report will evaluate Exponential Interactive Inc., an advertising technology firm seeking first round financing, as an investment proposal. Methods of analysis include examination of market, industry and competition as well as key value drivers, growth and operational strategies. When coupled with financial metrics including Ratio Analysis, Discounted Cash Flow Analysis and Valuation Multiples, a detailed view of the prospects of Exponential Interactive, Inc. can be formed. Findings showed that Exponential Interactive is operating at a high level from a profitability and efficiency standpoint; whilst carefully managing resources to date to resist the overtures of outside ownership. In particular, Exponential’s performance is particula rly strong compared to its direct competitors, who have for the most part, listed through IPO in the previous year yet maintain horrid margins and negative earnings. The report finds the prospects of Exponential in its current state very positive. The major areas for concern are external and revolve around the growth in demand for Advertising Technology and the development of competition within the market. In spite of these concerns, the overriding opinion of this report sees Exponential well positioned to grow alongside the market in which it operates. As such the details of a potential deal among the parties are as follows: A pre-money valuation of $1.34 with 42,160,288 outstanding shares- fully diluted- as per fair value estimates in Exponential’s S -1 filing. 18,068,695 shares will be issued to account for a 30% stake representing a post- money valuation (from the DCF) of $100,936,448.94. Exponentials price per share will rise to $1.67 as a result. Participating Convertible Preferred Stock A post-money valuation of $100,936,448.94.
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