How to prepare financial analysis on the following three companies to determine their worthiness for investment

Questions on the Hardina Smythe and the Healthcare Investment Conundrum Case:

1. How should Vine Brook evaluate each of the potential investments?

2. How can Hardina best position Vine Brook and herself for success?

Given:

Summary:

This case is complex because each of the investments has different strengths and weaknesses. Different investors value greater the management team, the technology itself (product) or the market. In this case AlwaysCovered has the all-star team, but a small market (unlikely to tap into other industries) and an easily copied product. BioChallenges has a potential for an amazing product, but does not have an outstanding CEO, who moreover makes strange choices to outsource trials to Eastern Europe - not reliable place. SweetDreams is attempting to address a massive market, but the product itself might not be attractive for the customer. Moreover SweetDreams has serious management problems.

Always Covered Software

Product a scheduling tool delivered over the internet via a web interface

Problem addressing costly staffing for hospitals and other healthcare providers

Team "all-stars", experienced (serial) entrepreneurs + have strong network

Technology once installed, will require high switching costs

Customers already happily used by 4 and 2 are interested to expand usage

Clear exit strategy acquisition once grown big enough

Monthly recurring fees - good for cash flows

Small installation fees - economies of scale

Growth potential in other markets

Relatively small investment

Technology nothing very new, easily replicable

Team too few sales people to sustain competitive advantage (other staffing companies can replicate the service very quick)

Hard to convince unions (but one of the unions is on their side)

No quick return (very important for the VC)

Takes at least a year to get a contract (according to her) - 4-6 months according to the company

--> Competition can take over the market very quickly and draw down the prices (so their sales plan is not realistic and ROI could be really slow)

Financials:

Average hospital spends $3 million on staffing

Market: $400 million (nurses) $800 million - $1 billion (other healthcare)

Valuation: $4 million

Raising $6 million - but will it be enoughjQuery22402199610306296199_1603561580801?

Y1 financials: Rev: $2mil, COGS: 0.5mil, SGA: 6.5mil, NI:-5.0mil

Y2 financials: Rev: $15.5mil, COGS: 4.4mil, SGA: 13.2mil, NI: -2.1mil

Y3 financials: Rev: 48.5mil, COGS: 15.2mil, SGA: 23.3, NI = 10mil

Biochallengers

Product biotech company developing and commercializing therapies for Multiple Sclerosis

Problem current offering in the market has side effects, "treatment that potentially worked better, lasted

longer and was far more easily tolerated"

+

Technology successful trials

Funding already raised $9 million and than another $40 - investors trust in it

Clear exit IPO within two years or an acquisition by one of the big pharmas

Alternatives if this fails company still has a lot more going on

Little involvement from the company

-

Technology investing in trials means no profit in any short run

Technology limited transparency about the product

Comment from senior in the company (they are in for a rough ride)

why don't big pharma invest? Is there something wrong?

no place on the board - could seem like a weakness, but also strength as it saves time for VBC

Have to rely on the external info

really high investment!! (compared to the size of the funds)

Financials:

Other competitors generate $3.5 billion a year (avg $1bil per comp. roughly)

Revenues growth for industry: 15% next 5 years

Pre-money valuation $125 million

Raising $40mil

Sweet Dreams Technology

Product implantable device to help reduce obstructive sleep apnea

+

Market very large and growing market

Technology clear and transparent

investment suggested by Plymouth, so could be trusted... or could it?

-

Team - not stable CEO, bad management

not clear how much we need to invest

not clear exit strategy

a lot of involvement from the VC

VC has already invested in many medical devices and wants to differentiate

Financials:

Valuation $19 million (rising some number a bit above this)

Market $3 billion

Extra:

VC: wants quick ROI, clear exit and no babysitting of the firm; has a portfolio full of medical devices so is not very keen in investing any more there; CEO doesn't believe in biotech investment

Hardina: wants to prove herself and needs to do so within a year. expert in medical devices, but doesn't want to be only known as medical device investor;