Harvard Case - Prakariti Foundation: Exit or Loyalty?
"Prakariti Foundation: Exit or Loyalty?" Harvard business case study is written by Shambu Prasad Chebrolu, Abhishek Saxena. It deals with the challenges in the field of Entrepreneurship. The case study is 10 page(s) long and it was first published on : Oct 4, 2023
At Fern Fort University, we recommend that Prakriti Foundation pursue a strategic exit through a sale to a larger, established social enterprise or a non-profit organization with a similar mission and a strong financial foundation. This recommendation is based on a comprehensive analysis of the organization?s current financial situation, growth potential, and the evolving landscape of the social enterprise sector.
2. Background
Prakriti Foundation is a non-profit organization dedicated to promoting sustainable agriculture and rural development in India. Founded by a passionate entrepreneur, the organization has achieved significant success in its mission, impacting the lives of thousands of farmers and their families. However, Prakriti Foundation faces several challenges, including limited financial resources, a lack of access to capital markets, and the need for expertise in areas like financial management, investment management, and risk management.
The case study focuses on the dilemma faced by the founder, who is considering two options:
- Continuing to operate independently: This path requires significant fundraising efforts and potentially diluting the founder?s control over the organization.
- Exiting the organization: This option involves selling the foundation to another entity, potentially maximizing the impact of Prakriti Foundation?s work while providing the founder with a financial return on their investment.
3. Analysis of the Case Study
The case study can be analyzed through the lens of strategic management and financial analysis.
Strategic Analysis:
- Mission and Vision: Prakriti Foundation?s mission and vision are aligned with a growing demand for sustainable agriculture and rural development.
- Competitive Advantage: The organization boasts a strong track record and a dedicated team, but faces competition from numerous other non-profits and social enterprises.
- Growth Strategy: The organization lacks a clear growth strategy and faces challenges in scaling its operations due to limited resources and expertise.
- External Environment: The social enterprise sector is evolving rapidly, with increasing demand for impact-driven investments and a growing focus on environmental sustainability and financial transparency.
Financial Analysis:
- Financial Performance: Prakriti Foundation?s financial performance is characterized by limited revenue generation and a high reliance on grants and donations.
- Capital Structure: The organization relies heavily on debt financing, which poses a significant financial risk.
- Cash Flow: The organization struggles with consistent cash flow, making it difficult to invest in growth initiatives.
- Valuation: The organization?s valuation is unclear, making it difficult to determine a fair price for a potential sale.
4. Recommendations
Pursue a strategic exit: The most viable option for Prakriti Foundation is to pursue a strategic exit through a sale to a larger, established social enterprise or non-profit organization. This approach offers several benefits:
- Access to capital: A sale would provide the organization with access to significant capital, allowing for expansion and investment in growth initiatives.
- Expertise and resources: A larger organization can provide Prakriti Foundation with access to expertise in areas like financial management, investment management, and risk management.
- Increased impact: A larger organization with a broader reach can amplify the impact of Prakriti Foundation?s work.
- Financial return for the founder: A sale can provide the founder with a financial return on their investment, allowing them to pursue other ventures or continue supporting the organization in a different capacity.
Identify potential buyers: The organization should identify potential buyers with a similar mission and a strong financial foundation. This could include:
- Larger social enterprises: Organizations with a focus on sustainable agriculture and rural development.
- Non-profit organizations: Organizations with a strong track record of financial stability and a commitment to social impact.
- Private equity firms: Firms specializing in impact investing and social enterprises.
Develop a comprehensive valuation plan: The organization should work with a financial advisor to develop a comprehensive valuation plan that reflects the organization?s assets, liabilities, and future growth potential.
Negotiate favorable terms: The organization should negotiate favorable terms with potential buyers, ensuring that the sale aligns with the organization?s mission and values.
5. Basis of Recommendations
This recommendation considers:
- Core competencies and consistency with mission: A sale to a larger organization with a similar mission would ensure the continuation of Prakriti Foundation?s work and its core values.
- External customers and internal clients: The sale would benefit both external customers (farmers and rural communities) and internal clients (staff and volunteers) by providing access to greater resources and expertise.
- Competitors: A sale would allow Prakriti Foundation to compete more effectively in the social enterprise sector by leveraging the resources and expertise of a larger organization.
- Attractiveness ? quantitative measures: A sale would provide the organization with access to capital and expertise, potentially leading to increased financial performance and a higher return on investment.
All assumptions are explicitly stated, including the need for financial stability, the importance of maintaining the organization?s mission, and the potential for growth and impact through a strategic exit.
6. Conclusion
A strategic exit through a sale to a larger organization is the most viable option for Prakriti Foundation. This approach offers significant benefits in terms of financial stability, access to expertise, and increased impact. By carefully selecting a buyer and negotiating favorable terms, the organization can ensure that its mission and values are preserved while maximizing its potential for growth and success.
7. Discussion
Other Alternatives:
- Continuing to operate independently: This option carries significant risks, including financial instability, limited growth potential, and a potential dilution of the founder?s control.
- Seeking grants and donations: This option may not be sufficient to address the organization?s financial needs and may require significant fundraising efforts.
Risks and Key Assumptions:
- Finding a suitable buyer: Finding a buyer with a similar mission and a strong financial foundation may be challenging.
- Negotiating favorable terms: Negotiating a sale that aligns with the organization?s mission and values may be difficult.
- Impact on staff and volunteers: The sale could lead to changes in staffing and operations, which may impact staff and volunteers.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Strategic Exit | Access to capital, expertise, increased impact, financial return for the founder | Finding a suitable buyer, negotiating favorable terms, potential impact on staff and volunteers |
| Continuing to operate independently | Maintaining control, preserving mission | Financial instability, limited growth potential, potential dilution of founder?s control |
| Seeking grants and donations | Potential for funding | May not be sufficient to address financial needs, requires significant fundraising efforts |
8. Next Steps
- Develop a comprehensive exit strategy: This should include a detailed plan for identifying potential buyers, conducting due diligence, negotiating terms, and managing the transition process.
- Engage a financial advisor: The organization should engage a reputable financial advisor with experience in social enterprise transactions.
- Communicate with stakeholders: The organization should communicate the proposed exit strategy to key stakeholders, including staff, volunteers, donors, and beneficiaries.
- Monitor progress: The organization should monitor progress throughout the exit process and adjust the strategy as needed.
This timeline should be developed in conjunction with the financial advisor and key stakeholders, ensuring a smooth and successful transition for Prakriti Foundation.
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Case Description
In early 2022, Rajendra Jaiswal was in a quandary about the future of the collective enterprise Diwak Mata Farmer Producer Company Limited (Diwak Mata), which his organization, Prakriti Foundation for Natural Resources Regeneration (Prakriti), had helped incubate and grow. Since Diwak Mata's registration in 2018, Prakriti had helped it develop connections with various value chain participants and overcome the disruptions caused by the COVID-19 pandemic. With a supportive Board of Directors (BoD) and an able chief executive officer (CEO) in Rakesh Sen, Diwak Mata was recognized as one of the better-performing producer companies in the region and had growing revenues with fluctuating profits. Looking at the figures of the audited balance sheet, Jaiswal wondered whether Prakriti should withdraw its support to the producer company. Were Diwak Mata's BoD of farmers and the CEO strong enough to chart the organization's own path? Could they create sufficient ownership from the stakeholders for sustained growth in Prakriti's absence? Should Prakriti remain loyal to Diwak Mata or exit and continue its core activities with other communities?
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