Harvard Case - Sizable: Crowdfunding Campaign! ...Again
"Sizable: Crowdfunding Campaign! ...Again" Harvard business case study is written by Nancy Huyghebaert, Olga Kandinskaia. It deals with the challenges in the field of Finance. The case study is 22 page(s) long and it was first published on : Mar 31, 2021
At Fern Fort University, we recommend that Sizable pursue a Series A funding round to secure the necessary capital for scaling its operations and achieving long-term profitability. This funding round should be structured to attract a mix of institutional and angel investors, with a focus on investors with expertise in the fintech and consumer lending space. Sizable should leverage its strong track record, growing user base, and potential for significant market share to secure favorable terms and a valuation that reflects its future growth prospects.
2. Background
Sizable is a rapidly growing fintech startup that has successfully launched a crowdfunding platform for small businesses. The company has demonstrated strong traction with its initial crowdfunding campaign, attracting a significant number of users and generating substantial revenue. However, Sizable faces challenges in scaling its operations, managing its growing customer base, and expanding its product offerings. The company is considering various options to secure the necessary capital for growth, including a second crowdfunding campaign, a traditional bank loan, or a venture capital investment.
The main protagonists of the case study are the founders of Sizable, who are grappling with the decision of how to finance the company's growth. They need to weigh the pros and cons of different funding options, considering the potential impact on their equity, control, and future growth trajectory.
3. Analysis of the Case Study
To analyze Sizable's situation, we can utilize the Financial Analysis Framework, focusing on the following key areas:
- Financial Performance: Sizable's strong initial crowdfunding campaign demonstrates its potential for profitability. However, the company needs to assess its current financial performance, including revenue growth, profitability margins, and cash flow generation.
- Capital Needs: Sizable needs to determine its specific capital requirements for scaling its operations, developing new products, and expanding its marketing efforts. This analysis should consider the company's projected growth rate, operating expenses, and potential investment opportunities.
- Funding Options: The case study presents three primary funding options: a second crowdfunding campaign, a bank loan, and a venture capital investment. Each option has its own advantages and disadvantages in terms of cost of capital, dilution, and control.
- Valuation: Sizable needs to determine its current valuation and project its future valuation based on its growth potential and market opportunity. This valuation will be crucial in negotiating funding terms with potential investors.
- Risk Management: Sizable needs to assess the risks associated with each funding option, including the potential for dilution, loss of control, and the impact on its future growth strategy.
4. Recommendations
To address Sizable's challenges and achieve sustainable growth, we recommend the following:
- Pursue a Series A Funding Round: Sizable should prioritize a Series A funding round to secure the necessary capital for scaling its operations and achieving long-term profitability. This funding round should be structured to attract a mix of institutional and angel investors, with a focus on investors with expertise in the fintech and consumer lending space. This will provide Sizable with access to valuable industry knowledge and connections.
- Develop a Comprehensive Financial Strategy: Sizable should develop a detailed financial strategy that outlines its capital needs, funding sources, and projected financial performance. This strategy should include a comprehensive financial model that projects revenue, expenses, and cash flow over the next few years.
- Negotiate Favorable Terms: Sizable should leverage its strong track record, growing user base, and potential for significant market share to secure favorable terms for its Series A funding. This includes negotiating a fair valuation, a reasonable equity stake, and a board seat for the investors.
- Focus on Growth and Profitability: Sizable should prioritize growth and profitability in its strategic planning. This includes developing new product offerings, expanding its user base, and optimizing its operations for efficiency.
- Implement Strong Corporate Governance: Sizable should establish strong corporate governance practices to ensure transparency, accountability, and shareholder value creation. This includes establishing a board of directors with diverse expertise, implementing internal controls, and adhering to best practices for financial reporting.
5. Basis of Recommendations
Our recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Sizable's core competency lies in its ability to connect small businesses with investors through its crowdfunding platform. A Series A funding round aligns with the company's mission to empower small businesses by providing them with access to capital.
- External Customers and Internal Clients: Sizable's external customers are small businesses seeking funding, while its internal clients are the investors who provide the capital. A Series A funding round will help Sizable attract more investors and provide better services to both its external and internal clients.
- Competitors: The fintech and crowdfunding space is becoming increasingly competitive. Securing a Series A funding round will provide Sizable with the resources to compete effectively and differentiate itself from its rivals.
- Attractiveness ' Quantitative Measures: A Series A funding round will provide Sizable with the capital it needs to scale its operations, expand its product offerings, and increase its market share. This will lead to higher revenue, improved profitability, and a stronger valuation.
6. Conclusion
Sizable is well-positioned to become a leader in the fintech and crowdfunding space. By pursuing a Series A funding round, the company can secure the necessary capital to scale its operations, achieve long-term profitability, and create significant value for its stakeholders.
7. Discussion
Other alternatives not selected include:
- Second Crowdfunding Campaign: While a second crowdfunding campaign could provide additional capital, it might be more challenging to attract investors after the initial campaign. It could also dilute the founders' equity further.
- Traditional Bank Loan: A bank loan could provide Sizable with debt financing, but it might come with restrictive covenants and higher interest rates. It could also limit the company's flexibility in making strategic decisions.
Risks and Key Assumptions:
- Valuation: Sizable's valuation is a key assumption in our recommendations. If the company is unable to secure a favorable valuation, it may need to reconsider its funding options.
- Competition: The fintech and crowdfunding space is competitive, and Sizable needs to be prepared to compete effectively.
- Regulatory Environment: The regulatory environment for fintech companies is evolving rapidly, and Sizable needs to stay informed of any changes that could impact its operations.
8. Next Steps
To implement our recommendations, Sizable should take the following steps:
- Develop a detailed financial plan: This plan should include a comprehensive financial model, a capital budget, and a clear strategy for achieving profitability.
- Identify potential investors: Sizable should target investors with expertise in the fintech and consumer lending space.
- Prepare a compelling pitch deck: This deck should highlight Sizable's business model, market opportunity, and financial performance.
- Negotiate funding terms: Sizable should leverage its strong track record and growth potential to secure favorable terms for its Series A funding.
- Build a strong management team: Sizable should recruit experienced professionals with expertise in finance, operations, and marketing.
By following these steps, Sizable can successfully navigate its growth phase and achieve its full potential.
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Case Description
The Sizable Case presents a decision situation. The case setting is Brussels, early November 2017. Marie Martens was at that time the newly appointed CEO of the start-up company Sizable, which was a specialist in men's undergarment made from eco-friendly bamboo, eucalyptus, and organic cotton. Since its start-up in January 2015, the company had shown high growth potential, and Martens felt confident that by further scaling up the business, Sizable could be leveraged into a position in which it would be highly profitable. Martens was not the only one who had faith in Sizable's attractive prospects. Since March 2015, multiple investors had put their money at stake, either directly as private investors in the company or via the company's three crowdfunding campaigns. In November 2017, Sizable needed 100,000 euros of additional financing. Together with the other members of the management team, Martens had prepared a business plan and proposed prompt action to secure extra funding over the month of November. While the decision to move forward with a new crowdfunding campaign was made, Martens worried about the risks of a fourth round of crowdfunding. Failing would not only mean a lack of funds, but also a stained reputation. Martens wondered how she could make this campaign even more successful than the previous rounds. She had several concerns: first, how would the market react to the change in the management team, with the firm now led by a female CEO; second, whether to use a different crowdfunding platform or rely on one of the platforms used in the past; third, would she be able to deal with investors' typical concerns about break-even and dilution; and finally, what share price would be most appropriate. She had to decide very quickly on these issues since the new crowdfunding round was set to begin before the end of the month.
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