Wireless Systems Integrator (Offering)
Industry & Marketplace Analysis
Offering
In return for an investment of $2.5 million, SpongeShark is offering a 24 percent share of the company to the investor. We expect that this investment will grow by 80 percent annually over our five-year planning horizon. Details of the valuation and returns to the investor calculations can be found in Appendix B.
Funding Required
SpongeShark is seeking an initial equity investment of $2.5 million to fund research and development, marketing expenses, working capital requirements, and to finance our first installation. A second round investment of $5 million will be required 12 months after the initial round to support additional customer acquisitions and subsequent rapid growth of the company.
Valuation and Offering
SpongeShark's valuation at the time of the anticipated exit event in 2005 is approximately $200 million. The initial $2.5 million investment will acquire 24 percent of the company in preferred Series "A" stock. The investor is expected to gain an internal rate of return of 80 percent and a 20X return on investment at the exit event in five years.
The second round investment of $5 million will acquire an additional 21 percent of the company in preferred Series "B" stock. The second round investor is expected to achieve an internal rate of return of 70 percent and a 8X return on investment at the exit event in four years.
Exit Strategies
The preferred exit strategy in 2005 for SpongeShark investors will be acquisition after the company has proved the business model and has begun to stabilize operations and revenue growth. By the fifth year of operation, SpongeShark will have substantial revenues and a valuable knowledge base regarding delivering wireless technologies to the travel industry. Larger information technology, systems integrators, or wireless communications companies that have not developed a Bluetooth expertise in-house will find SpongeShark to be an attractive acquisition target. An additional liquidity event for our investors will be an initial public offering in 2005. This strategy will depend largely on the market for initial public offerings at the time of exit.
