Aussie Watches was founded by four friends, Andy, Bob, Carrie and Donna, who wanted to design and sell watches internationally but with a distinctive Australian feel. They set up their business as a corporation to limit liability. They have decided to crowdfund their business with pre-orders and that way they can gauge demand before they start. They have already each invested $5,000 to design and obtain prototypes of their watches. They launched a Kickstarter page 3 weeks ago to showcase their products and take pre-orders. The Kickstarter page runs for 6 weeks and they need to have commitments of $50,000 or the fundraising is cancelled and all the committed money is returned. The commitment numbers for the first three weeks are:

Week

Cumulative total commitment

1

$10,000

2

$17,000

3

$24,000

The founders are concerned that they wont make the minimum commitment and the money will be returned. They have based their requirement for $50,000 as their estimated break-even point but they could adjust before the deadline if needed. They have $20,000 in development costs that they have already paid and there are no additional costs if they proceed. They are charging $450 for each watch with $200 the cost for each watch.

2. Should you adjust the commitment required? (2 marks)

The founders each own 25% of the company and two of them are thinking of leaving the company. They never agreed to an exit plan so when they brought it up the other two offered them their money back, but they think the company will be worth a lot more. They estimate that they will be able to sell upwards of 800 in the first year, increasing by 200 each of the next three years before slowing down rapidly and selling only 500 watches over each of the next two years before going out of style. They think the business is worth $1,000,000 and they each want $250,000 for their 25%.