Harvard Case - Diamond Standard
"Diamond Standard" Harvard business case study is written by Lauren H. Cohen, Zhaoheng Gong, Grace Headinger. It deals with the challenges in the field of Finance. The case study is 24 page(s) long and it was first published on : Sep 1, 2023
At Fern Fort University, we recommend that Diamond Standard proceed with its plan to launch an exchange-traded fund (ETF) backed by physical diamonds. This ETF will offer investors a new and innovative way to invest in the diamond market, providing diversification and potential for high returns.
2. Background
Diamond Standard is a company aiming to revolutionize the diamond market by creating a transparent and liquid investment vehicle. The company's core product is a diamond-backed ETF, which will allow investors to access the diamond market through a regulated and easily traded instrument. The case study presents the company's initial steps, including securing funding, building a team, and developing a strategy for launching the ETF.
The main protagonists in this case study are:
- Diamond Standard's leadership team: They are responsible for developing the company's strategy, securing funding, and launching the ETF.
- Potential investors: These are the individuals and institutions who will be targeted by Diamond Standard to invest in the ETF.
- The diamond industry: This is the broader context in which Diamond Standard operates, and its stakeholders will be impacted by the company's success.
3. Analysis of the Case Study
Financial Analysis:
- Capital Budgeting: Diamond Standard needs to carefully analyze the costs associated with launching the ETF, including development costs, marketing expenses, and regulatory compliance. They must also consider the potential returns from the ETF, including management fees and potential capital appreciation.
- Risk Assessment: The diamond market is subject to volatility, and Diamond Standard must carefully assess the risks associated with their investment strategy. This includes price fluctuations, liquidity risks, and potential regulatory changes.
- Financial Modeling: Diamond Standard needs to develop a robust financial model to project the ETF's performance under various scenarios. This model should consider factors such as diamond prices, investor demand, and operating costs.
Strategic Analysis:
- Growth Strategy: Diamond Standard's strategy is to capitalize on the growing demand for alternative investments and the lack of liquid investment options in the diamond market. They aim to attract investors seeking diversification and potential for high returns.
- Competitive Analysis: Diamond Standard faces competition from traditional diamond investment vehicles, such as physical diamonds and diamond-backed bonds. They must differentiate themselves by offering a transparent, liquid, and easily accessible investment product.
- Market Analysis: Diamond Standard needs to understand the target market for their ETF, including investor demographics, risk tolerance, and investment goals. This analysis will inform their marketing strategy and product development.
Operational Analysis:
- Asset Management: Diamond Standard needs to develop a robust system for managing the physical diamonds backing the ETF. This includes sourcing, storage, and security measures to ensure the integrity of the investment.
- Technology and Analytics: Diamond Standard can leverage technology to improve efficiency and transparency in their operations. This includes using blockchain technology to track diamond provenance and using data analytics to optimize investment strategies.
- Partnerships: Diamond Standard can benefit from strategic partnerships with diamond suppliers, financial institutions, and technology providers. These partnerships can enhance their market reach, credibility, and operational efficiency.
4. Recommendations
- Launch the ETF: Diamond Standard should proceed with launching their ETF, targeting investors seeking diversification and exposure to the diamond market.
- Develop a robust marketing strategy: The company needs to effectively communicate the value proposition of the ETF to potential investors. This includes highlighting the transparency, liquidity, and potential for high returns.
- Build a strong team: Diamond Standard should continue to build a team with expertise in finance, investment management, and the diamond industry. This will ensure the successful launch and management of the ETF.
- Focus on regulatory compliance: Diamond Standard must prioritize compliance with all relevant regulations to ensure the ETF is a legitimate and trustworthy investment product.
- Explore strategic partnerships: Diamond Standard should seek partnerships with diamond suppliers, financial institutions, and technology providers to enhance their market reach and operational efficiency.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Diamond Standard's core competency lies in creating a transparent and liquid investment vehicle for the diamond market. This aligns with their mission to democratize access to this asset class.
- External customers and internal clients: The ETF is designed to meet the needs of investors seeking diversification and potential for high returns. It also aligns with the interests of Diamond Standard's internal stakeholders, who are seeking to build a successful and sustainable business.
- Competitors: Diamond Standard's ETF offers a unique value proposition compared to traditional diamond investment vehicles, providing greater transparency, liquidity, and accessibility.
- Attractiveness: The ETF has the potential to attract a large investor base, generating significant revenue and shareholder value for Diamond Standard.
6. Conclusion
Diamond Standard has a unique opportunity to revolutionize the diamond market by creating a transparent and liquid investment vehicle. The ETF has the potential to attract a large investor base, generating significant revenue and shareholder value for the company. By carefully executing their launch strategy and building a strong team, Diamond Standard can establish itself as a leader in the diamond investment space.
7. Discussion
Alternatives:
- Delaying the launch: This option would allow Diamond Standard to further refine their strategy and product, but it could also result in losing market share to competitors.
- Focusing on a niche market: Diamond Standard could target a specific segment of the investor market, such as high-net-worth individuals or institutional investors. This could limit their potential market reach.
Risks:
- Market volatility: The diamond market is subject to price fluctuations, which could impact the ETF's performance.
- Regulatory changes: Changes in regulations could impact the ETF's structure and operations.
- Competition: Diamond Standard faces competition from traditional diamond investment vehicles and potential new entrants.
Key Assumptions:
- Investor demand: The success of the ETF depends on investor demand for a diamond-backed investment vehicle.
- Diamond price stability: Diamond prices must remain relatively stable to ensure the ETF's value.
- Regulatory environment: The regulatory environment must remain favorable for the ETF's launch and operation.
8. Next Steps
- Secure regulatory approval: Diamond Standard should prioritize obtaining the necessary regulatory approvals for the ETF.
- Develop a marketing strategy: The company should develop a comprehensive marketing plan to target potential investors.
- Build a strong team: Diamond Standard should continue to hire experienced professionals in finance, investment management, and the diamond industry.
- Monitor market conditions: The company should closely monitor market conditions to adjust their strategy as needed.
By following these steps, Diamond Standard can successfully launch its ETF and establish itself as a leader in the diamond investment space.
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Case Description
Cormac Kinney, Founder and CEO of Diamond Standard, was on a mission to transform the U.S. diamond market through unlocking the precious gems as market-traded assets. As a serial FinTech entrepreneur, he hoped to add an additional service to his vault: Carats. The commodity currency would be backed by a fungible resource, being the first in its field to have a physical-digital combination. Following the recent crypto-market crash, Kinney wondered if this was the right opportunity to launch his product. Although Kinney saw Carats as the best of both gold and other decentralized currencies, his advisors were wary of the potential regulatory risks that could ensue, in addition to the current dreary landscape of the crypto-market. Should Diamond Standard pursue Kinney's vision of Carats, or focus its limited resources on other diamond-backed financial products?
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