Finlatics Investment Banking Experience Program Project 2

1. Education Technology Company

I believe that this company’s product lies in the ideation phase. In this phase, the product is
being developed and the investor invests in the research and development of the product. The
product should have 2 essential characteristics – it should create intellectual property and have
mass marketability. The augmented reality app for biology students has the potential to make
learning the human anatomy a highly interactive and visual process, making it easy for the
students to learn and understand this difficult topic.
The augmented reality app is tech-driven and helps solve the problem of biology students of
understanding the human anatomy not just theoretically, but visually as well, which proves that
the product creates intellectual property. Also, given that Biology is one of the core subjects
taught in school and is essential for students to understand, the product is capable of being used
by a large market. Since these students belong to the age group that have a high number of
mobile phone users as well, this product also has mass marketability. Given that there is low
understanding of the product-market fit, the company needs funding and guidance in order to
commercialize and scale.
Swot Matrix
Strength Weakness
• Facilitates interactive and visual • Requires students to have a
learning smartphone
• Storage of figures is possible • Continuous use of smartphone
• Ability to rewatch multiple times till which can cause health issues like
concept is grasped by students. eye damage
• Works under assumption that most
students are visual learners.
Opportunity Threat
• Diversification of subjects in future • High operating cost
• Developments in tech can be easily • Institutions can have their own
incorporated in the future app system set up for visual aid
upgrades • Susceptible to cyber attacks

2. There have been numerous developments in the realm of Augmented Reality in the past few
years and there is constant research to improve it. IKEA Place is an example of an Augmented
realty application. Users can try many different products, styles and colours of furniture in real-
life setting and experiment how that design looks in a certain space like home, office, school
or studio. The app automatically scales products – based on room dimensions – with 98%
accuracy. The AR technology is so precise that you will be able to see the texture of the fabric,
as well as how light and shadows are rendered on your furnishings. Similarly, in the ed-tech
app, the organs and systems of the human body and their movements are shown in real time
using the AR technology. With all these advancements in the AR space, there is also concern
of all the challenges that come with them.
Infrastructure Capability of Institutions
Many schools and institutions may not have the necessary hardware required to run this
application. Not all students have a mobile phone and not all institutions allow students to carry
a mobile phone with them. This restricts the use of this app to only the students from families
having middle and high-level income and the institutions allowing students to carry mobile
phones. So, there is a need to target institutions while taking these factors into consideration
and also to market the product such that the value of the product is communicated to the
institutions. Also, all students do not have the same mobile phone, they differ in brands,
resolution, camera quality, software compatibility, etc. The company must ensure that the app
is compatible with all operating systems like IOS, Android, Windows, etc. and that the quality
of the display can be maintained across devices.
High power consumption
Since the application requires the user to keep their camera and mobile screen switched on for
a prolonged period of time, it will cause a lot of power consumption and battery drainage. This
excessive drainage of battery negatively affects the battery life of the device. A similar problem
occurs with the messaging application Snapchat which uses the phone camera to take pictures
and videos, enable filters and send those snaps as messages to people. The app continuously
checks for location updates in the background which is why it becomes a battery hog. A
solution for this could be to develop a ‘lite’ mode of the ed-tech application which works by
using lesser battery, lower resolution and may not make use of all the features of the application
at a time. This can be a good option when the application has to be used for a long period of
time.
Revenue Generation
A drawback for all AR based apps is the high cost of research, development and maintenance
of the app. Given the high costs involved in production, it is necessary to generate adequate
revenue from the application. So, it will be very difficult for the company to operate on a free
model and sustain the business with its high-cost structure. The company will have to use a
subscription-based model and further go on to provide discounts and other incentives to
institutions. Most of the institutions will accept a trial run first before incorporating the
application in their study infrastructure which will lead to profit generation after a long time
period.

3. A convertible note is a loan extended to an early-stage company, that is convertible to equity

after achievements of certain milestones in a defined time period. The percentage of conversion
varies on what extent is the company able to achieve its slated milestones that it has mentioned
in the convertible note agreement. As an investor, a convertible note is attractive to me since it
lets me protect my investment from losses while still believing in the entrepreneurs’ idea and
product. The milestones being set by me will be representative of the minimum expected
performance of the application within a span of 5 years.
Milestone 1:
The important parameters to judge the company’s performance are the number of institutions
subscribing to the application and the number of students using the application per institution
(usage rate per institute). With these we can understand how well the application is doing at
the beginning of commercialization. The parameters will be –
Number of Institutes subscribing = atleast 3 top tier and 2 middle tier institutes
Usage rate per institute = atleast 50 students of 9th and 10th STD
Milestone 2:
If the company is successful in the phase of commercialization, it should look for early growth
opportunities by using aggressive marketing strategies and get more institutes to subscribe to
the application. The parameters here will be –
Number of Institutes subscribing = atleast 5 top tier and 5 middle tier institutes
Usage rate per institute = atleast 50 students of 9th and 10th STD
Milestone 3:
After the product has gained considerable traction in the market, it is important to ensure that
the growth sustains itself. There will be considerable competition for the product which makes
it crucial for the company to increase the number of subscribing institutions faster than
competitors. The parameters for this growth will be –
Number of Institutes subscribing = atleast 9 top tier and 11 middle tier institutes
Usage rate per institute = atleast 50 students of 9th and 10th STD
Milestone 4:
The firm now needs to ensure that it holds a considerable market share to be more attractive
than its competitors, have advancements in the technology used to stay relevant and expand its
operations to include students of other levels. The parameters used here will be –
Number of Institutes subscribing = atleast 35 (upper and middle tier) institutes
Usage rate per institute = atleast 150 students (from 7th to 12th STD)
Students added per Convertible Note
Total number of
Initial Investment milestone Conversion Rate
students (in 5 years)
(optimally) (%)

50,00,000 250 >250 25%

50,00,000 500 750 – 251 19% - 24.9%

50,00,000 1000 3125 – 751 14% - 18.9%

50,00,000 5250 8375 – 3126 8% - 13.9%

ed as-As visible in the table, the total number of students using the app is taken as the milestone
in a period of 5 years for an initial investment of Rs.50,00,000. If the company only reaches
milestone 1 in 5 years, the conversion rate will be 25%. If the company takes 5 years to reach
milestone 2, the conversion rate will be 19%. In the case where the company reaches milestone
3 in a span of 5 years, the conversion rate will be 14%. If the company is successful in achieving
the 4th milestone in 5 years, then the conversion rate will be 8%. The conversion rates are
rangebound since the actual rate will depend on the number of students added within a certain
range.

4. The Customer Acquisition Cost for the ed-tech AR app will mostly be driven by the
promotional discounts given by the company to institutes like free trial periods, and other
marketing activities like website development, digital marketing, etc. The Customer
Acquisition Cost can be calculat

Total marketing expense to achieve milestone 1: Rs. 4,00,000

Number of customers acquired till milestone 1: 250
Customer Acquisition Cost = 4,00,000/250
Customer Acquisition Cost = Rs. 1600

We use 3 variables to calculate the Customer Lifetime Value which tells us the value of the
customer to the company – average value of customer’s purchase, customer purchase frequency
and time period of a customer’s purchase.

Price per 1-year subscription = Rs 850 per student

Average value of customer’s purchase for = Rs 850
Frequency of customer purchase = 1
Time period of a customer purchase = 1 year
Customer Lifetime Value = 850÷1×1
Customer Lifetime Value for 1st year = Rs. 850
So, the CAC and CLV for 5 years will be shown as –
 No. of times
Avg Value
a customer Time period
of Net profit on
will of customer CAC Total CLV
customer’s customer
purchase purchase
purchase
(Cumulative)
850 1 1 1600 850 -750
850 2 2 0 1700 100
850 3 3 0 2550 950
850 4 4 0 3400 1800
850 5 5 0 4250 2650

The company incurs a Customer Acquisition Cost of Rs 1600 per customer and earns Rs 850
per customer to achieve milestone 1. As shown in the table above, the company stops making
losses year 2 onwards. This indicates that the business needs to keep a customer loyal for at
least 2 years in order to make some profit on it.