QUESTION 2: APPLIED MINI CASE ON VENTURE INVESTMENT STRATEGY THREE SUB-QUESTIONS TOTAL MARKS 15/100 JUSTIFY YOUR ANSWER WELL IN WORDS AND BACK UP WITH NUMBERS IF RELEVANT! Description of Case: It is your first day on the job as an intern at the Venture Capital Fund Stone Henge Ventures [VC]. They have hired you for your impressive grades in Finance, Accounting and Strategy at the University of Sydney, and will test you out with this task. If your manager Alexandra, an experienced founder herself, likes what you suggest, they will let you present your case to the investment board, if Alexandra thinks you need further training you will just be assigned to another partner Linda, an expert on Chinese venture capital, to work with her on some of their projects - no harm done! This is your chance to show what you are made of! You have two days to complete this task so do not rush it! Situation and Context: Stone Henge is planning to set up a new fund for sophisticated accredited investors targeting high network individuals that would like to invest in both Australian and Chinese Startups and early stage ventures. You are asked to first suggest a suitable strategy, industry focus, and a set of companies the fund should consider for their first investment round. You will later work out the target investor categories, size and cost structure for this fund with your managers. 2.1 (5 MARKS) TASK 1: Select a strategy for the fund. Use the following screening criteria for your choice of strategy and the data in Table 1. The Screening criteria for choosing a VC investment with regards to strategy are, product differentiation, proprietary product. TABLE 1. The VC's chief strategist Mike has identified the following altemative strategies that he thinks will the most successful in the current market and state of the economy. 1. As the Australian share market has dropped by 26% from its high in February just before the Covid-19 crisis started impacting markets, an investment in a well diversified Australian stock portfolios is expected to return an annual retum of 25% with a standard deviation of 20%. 2. As the US share market has dropped by 26%, from its high in February just before the Covid crisis started impacting markets, and now has recovered 12% an investment in a well diversified US stock portfolios is expected to retum an annual retum of 12.5% with a standard deviation of 10%. 3. Exchange Traded Funds focusing on small firm has some of the best potential for great returns in the market rebound, expected annual return 50% with a standard version of 40%. 4. A carefully constructed fund portfolio of startup and early stage venture firms in the healthcare industry, based in Australia and China where many highly innovative and successful firms in the healthcare industry are set to benefit from the increased focus on healthcare. The fund would focus on companies with unique healthcare products that are not easy to replicate. Based on a portfolio of similar stocks in the sector the expected annual return is 100% with standard deviation of 50%. 5. Johnson & Johnson that large U.S. Pharmaceutical company is said to be closest to coming up with a vaccine against Covid-19, British American Tobacco, a British firm has a biotech arm that is developing vaccines in tobacco plants, they are also close. The strategist recommends a portfolio of stocks in companies that are close to coming up with a vaccine. The expected retum of such a portfolio is 500% if one of the companies comes up with the vaccine. The Standard deviation of this investment is very high and hard to measure. Select the most correct strategy for Stone Henge's new fund and justify why. 2.2. (5 MARKS) TASK 2: Select an industry from the alternatives in Table 2. You will base this decision on the following screening criteria: Market attractiveness, Potential size, Technology, Threat resistance. TABLE 2. Chief Strategist Mike recommends the following industries in order of highest to lowest expected return 1. Financial Companies, Expected Annual Return > 60% 2. Oil Companies, Expected Annual Retum > 50% 3. Technology, Expected Annual Retum > 40% 4. Utilities, Expected Annual Return > 30% 5. Mining, Expected Annual Retum > 20% 6. Energy, Expected Annual Return > 17% 7. Healthcare, Expected Annual Return > 15% Select the most correct industry for Stone Henge's new fund and justify why. 2.3. (5 MARKS) TASK 3: Select an industry from the alternatives in Table 2. You will base this decision on the following screening criteria: Market attractiveness, Potential size, Technology, Threat resistance. TABLE 3. Chief Strategist Mike recommends the following companies classified into categories by the dominating characteristics of the business. 1. Company category A, firms with low cash out potential at the verge of a rapid growth stage 2. Company category B, U.S. firms with high cash out potential at the verge of a rapid growth stage 3. Company category C, firms with high cash out potential offering a low equity share 4. Company category D, firms with high cash out potential, offering a significant equity share 50% Select the most correct company category for Stone Henge's new fund and justify why. QUESTION 2: APPLIED MINI CASE ON VENTURE INVESTMENT STRATEGY THREE SUB-QUESTIONS TOTAL MARKS 15/100 JUSTIFY YOUR ANSWER WELL IN WORDS AND BACK UP WITH NUMBERS IF RELEVANT! Description of Case: It is your first day on the job as an intern at the Venture Capital Fund Stone Henge Ventures [VC]. They have hired you for your impressive grades in Finance, Accounting and Strategy at the University of Sydney, and will test you out with this task. If your manager Alexandra, an experienced founder herself, likes what you suggest, they will let you present your case to the investment board, if Alexandra thinks you need further training you will just be assigned to another partner Linda, an expert on Chinese venture capital, to work with her on some of their projects - no harm done! This is your chance to show what you are made of! You have two days to complete this task so do not rush it! Situation and Context: Stone Henge is planning to set up a new fund for sophisticated accredited investors targeting high network individuals that would like to invest in both Australian and Chinese Startups and early stage ventures. You are asked to first suggest a suitable strategy, industry focus, and a set of companies the fund should consider for their first investment round. You will later work out the target investor categories, size and cost structure for this fund with your managers. 2.1 (5 MARKS) TASK 1: Select a strategy for the fund. Use the following screening criteria for your choice of strategy and the data in Table 1. The Screening criteria for choosing a VC investment with regards to strategy are, product differentiation, proprietary product. TABLE 1. The VC's chief strategist Mike has identified the following altemative strategies that he thinks will the most successful in the current market and state of the economy. 1. As the Australian share market has dropped by 26% from its high in February just before the Covid-19 crisis started impacting markets, an investment in a well diversified Australian stock portfolios is expected to return an annual retum of 25% with a standard deviation of 20%. 2. As the US share market has dropped by 26%, from its high in February just before the Covid crisis started impacting markets, and now has recovered 12% an investment in a well diversified US stock portfolios is expected to retum an annual retum of 12.5% with a standard deviation of 10%. 3. Exchange Traded Funds focusing on small firm has some of the best potential for great returns in the market rebound, expected annual return 50% with a standard version of 40%. 4. A carefully constructed fund portfolio of startup and early stage venture firms in the healthcare industry, based in Australia and China where many highly innovative and successful firms in the healthcare industry are set to benefit from the increased focus on healthcare. The fund would focus on companies with unique healthcare products that are not easy to replicate. Based on a portfolio of similar stocks in the sector the expected annual return is 100% with standard deviation of 50%. 5. Johnson & Johnson that large U.S. Pharmaceutical company is said to be closest to coming up with a vaccine against Covid-19, British American Tobacco, a British firm has a biotech arm that is developing vaccines in tobacco plants, they are also close. The strategist recommends a portfolio of stocks in companies that are close to coming up with a vaccine. The expected retum of such a portfolio is 500% if one of the companies comes up with the vaccine. The Standard deviation of this investment is very high and hard to measure. Select the most correct strategy for Stone Henge's new fund and justify why. 2.2. (5 MARKS) TASK 2: Select an industry from the alternatives in Table 2. You will base this decision on the following screening criteria: Market attractiveness, Potential size, Technology, Threat resistance. TABLE 2. Chief Strategist Mike recommends the following industries in order of highest to lowest expected return 1. Financial Companies, Expected Annual Return > 60% 2. Oil Companies, Expected Annual Retum > 50% 3. Technology, Expected Annual Retum > 40% 4. Utilities, Expected Annual Return > 30% 5. Mining, Expected Annual Retum > 20% 6. Energy, Expected Annual Return > 17% 7. Healthcare, Expected Annual Return > 15% Select the most correct industry for Stone Henge's new fund and justify why. 2.3. (5 MARKS) TASK 3: Select an industry from the alternatives in Table 2. You will base this decision on the following screening criteria: Market attractiveness, Potential size, Technology, Threat resistance. TABLE 3. Chief Strategist Mike recommends the following companies classified into categories by the dominating characteristics of the business. 1. Company category A, firms with low cash out potential at the verge of a rapid growth stage 2. Company category B, U.S. firms with high cash out potential at the verge of a rapid growth stage 3. Company category C, firms with high cash out potential offering a low equity share 4. Company category D, firms with high cash out potential, offering a significant equity share 50% Select the most correct company category for Stone Henge's new fund and justify why