12.10.

2017 Tutorial 2
6SSMN309 Entrepreneurial Finance
Olesya Makarova (1276118)

Question 1. Put yourself in Hardina Smythe’s place and systematically evaluate the three
options.

Hardina Smythe is in a new position. She has a range of 3 offers and each of them
has own advantages and disadvantages.
The first offer includes AlwaysCovered Software (raising $6mln). Strength:
veteran CEO with strong management backing, 400mln market, or 1bln if expand across
hospital, already in four mid-sized groups and probably moving to expand. They have
first mover advantage, clear exit: acquisition modest burn rate. Weakness: easily
replicable software, must move fast, difficult to evaluate risks in the short run, Hardina is
considering external unrelated variables, i.e. How she will look as oppose to focusing on
the opportunity.

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The second offer includes BioChallengers (Inc. raising $40mln). Strength: huge

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market $3.5bln; better product; less risky; IPO or acquisition possible due to industry;

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possible before trial results; strong portfolio of drugs; quick exit; acquisition (she would
look good due to high return). Weakness: long development time, high premoney

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valuation, little understanding of science behind product; must trust outside sources,
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arbitrary FDA approval process adds more risk.
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The third offer SweetDreams Technology. Strength: market 40mln americans =
$3bln market, market monopolized by inferior product, valuation will not be much higher
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than 19mln post money, already tested on pigs. Weakness: relationship focus based deal,
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leadership, requires hand-on approach.

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Question 2. Which should Hardina recommend for further due diligence and why?

I would recommend to go for the second offer by BioChallengers due diligence

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because it is the most beneficial for her. There are very strict regulations from FDA so
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may be only trust to external experts is not enough.

Question 3. What are some contextual factors that Hardina should consider?
is
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The most important contextual factors are macro-economic conditions in different

target markets (countries to sell the drug); they are crucial to predict possible demand for
the drug and particularly if people can afford it. If they decide to go IPO – demand plays
a significant role, which is more or less stable the last time.
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