This memorandum presents a valuation of Telco Exchange (TX) and serves as a consultation for Valhalla Partners to consider its investment in TX.
Art Mark’s Vote and Appropriate Valuation for Telco Exchange
Art Marks should vote to make an investment in Telco Exchange because the company possesses many of the components which could make it a potential 67 million dollar company (from our valuation by DCF method using WACC -Appendix A). Telco has a product that solves large company high cost issues revolving around telecom equipment and telecom services (makes around $250,000 per software licensing deal). They have been profitable in 2002 and the potential to have a revenue of a 50 million annual revenue in four years time. They have …show more content…

Assessment of Valhalla’s Due Diligence Process
Valhalla’s due diligence process in theory would potentially yield several advantages: allowing them to choose better deals, helping them craft smarter deal terms (weighing company valuation versus board control), and helping the company assess their operating plans. The second part of their strategy is to work closely with management and the final part of the strategy would be to focus on east coast information technology deals because that’s what Valhalla’s strengths would be. The framework included a thorough background and valuation analysis on the company which produced a 22 page memo and 100 day plan. Instead of using the five weeks time to negotiate back and forth with the company about valuation, they had planned on using this time for joint action with management team to establish banking and legal relationships, revise the company financials, and set timelines for product development.

The due diligence process is definitely what sets them apart from other VC firms. There is less risk with more information and the 100 day plan gives them a test drive of being investors before closing the deal. This might not be an efficient method for the cash starved companies which require immediate cash to finance their operations and fuel growth forcing the company to look for other investors.

Reference:

Sahlman William A, Valhalla Partners Due Dilligence(HBS Case), Harvard