FINS5523 Alternative Asset Classes
Term 1, 2023
Group Assignment – Investment Evaluation Report
Assignment Task:
The objective of this assessment is to put your knowledge into practice, specifically through
the task of preparing a funding proposal and recommendation on a new investment
opportunity currently considered by a venture capital fund.
Learning Outcomes:
At the completion of this assignment, you expected to acquire and demonstrate:
 the relevant technical skills in making quantitative and qualitative assessments of a
private company at the early stage of its development cycle
 strong understandings of the relevant theories, institutional framework and practical
issues related to venture capital investment, and how they apply to your analyses
 the ability to collect and compile important financial information as well as to
produce and present a detailed and convincing investment proposal report
 the ability to work cooperatively in a group
Scenario:
Your task is to act as an analyst team working in a venture capital (or private equity) fund.
You are tasked to provide an analysis and recommendations on a new investment proposal
pre-screened by the partners.
You can choose ONE among FIVE firms (pre-selected by your lecturer as this year’s
assignment materials) as the target firm in your analysis. These firms are scheduled to list on
the stock exchange soon. They range from early stage firms to expansion stage firms that are
not yet making a net profit.
Information on each of the firms is provided to you Moodle, mainly in the form of disclosure
documents (filings/prospectuses) made by the firm to the regulator. Should you require more
information to complete the assignment, it will be up to you to gather it.
Assumptions:
The assumption we make in the assignment is that due to weak conditions in the IPO market,
these firms decided that they were not actually at the stage or in a time where they should be
raising capital on the stock exchange. Specifically, we assume that they abandoned their
IPO plan and are now actively seeking ADDITIONAL venture capital/private equity
funding instead. For firms whose shareholders planned to sell shares in the IPO, we assume
that they are now seeking to sell shares to another venture capital/private equity partnership
(including your partnership).
You should select the firm based on whether its activity suits your interests / expertise /
curiosity. The background information given to you is in the S-1 or F-1 form (essentially a
preliminary prospectus) filed by the company with the SEC (the American regulator). You
should rely on this information; however, you must make the assumption that the company
is still private firm seeking venture capital funding. Your company might have also
engaged in certain corporate transactions (M&A, additional financing) after the IPO
withdrawal, but you should also ignore the existence and effect of these transactions.
When you analyse the prospectus, you must discard details related to the proposed listing
(e.g. invitation to subscribe for shares in a public offer, offer share price, number of shares
offered to the public, etc.). However, you can rely on the prospectus’ share offer information
to make assumptions about (1) how much money the firm is raising in new capital
(excluding issuing costs and amount sold directly by selling shareholders), (2) the proforma
financial statements (which incorporate the proposed raising amount), (3) how the money
raised would be used, and (4) the appropriateness of the original prospectus price (if
available). You must also assume that your report / proposal is written at some time
after the closing date stated in the prospectus. Market and industry conditions at such
times should be taken into account, but you are given to some extent the benefits of
hindsight.
Team Setup:
The assignment is a group assignment and must be done in groups of your choice of either
2 or 3 or 4 students (max). If you cannot find a group by the end of week 4 then you
should talk to your lecturer to get assigned into a group.
You need to be proactive in the class regarding forming a group. A starting point could be to
talk as many other class members as you can, or take advantage of the case discussion
sessions.
Group meetings:
It is expected that each group should have weekly meetings.
Contributions and Responsibilities:
Group assignments can sometimes attract a “free-rider” who fails to make a fair contribution
towards the assignment workload. When you establish your group, you should clearly set
out the expectations for workload in your assignment plan. All of this information can be
used to resolve group conflicts, review individual members’ performance and penalise
students who are deemed to have not made a fair and reasonable contribution by the
LECTURER.
In order to ensure equity in the group, all groups should complete an assignment plan
indicating: (1) the division/collaboration of tasks among group members, (2) the schedule of
meetings (including online), and (3) all internal due dates (for each group member and/or
the entire group). This must be done in the first group meeting. The teaching staff in the
course will be unable to assist in resolving group issues if groups do not complete an
assignment plan.
Before the submission, all group members will complete and sign a ‘cover sheet’ indicating
the level of actual contribution of each student, including the number of meetings attended
and percentage contribution in three areas: research, synthesis and writing. A mark of
ZERO will be awarded to any student who fails to sign the cover sheet. Both the
assignment plan and the final cover sheet must be submitted with the report as attachments.
It is also imperative that you identify groups conflicts and bring them to the attention of the
teaching staff (your lecturer) early (i.e. as soon as they arise) and that records of all
communication, meeting attendances, submission schedules, and input documents are kept
by each group member. In the event of a serious group conflict, where there is disagreement
about individual contributions, the lecturer will adjust the marks individually based on
this additional information.
The lecturer will NOT resolve any group conflicts reported within three days of the
assignment due date and after the due date. You should set final internal deadlines well
before the submission to ensure that there is enough time to put together the final touches.
Writing your Investment Proposal:
You must write a report addressed to the fund’s partners and investment committee which
evaluates your selected firm’s investment merits. You should note that the content, style and
level of detail of this type of report should be of a professional standard. It should be a
critical analysis of the investment opportunity. You should adopt a very conservative
approach in the analysis and in arriving at the final valuation. However, you MUST provide
a final price regardless of how negative you feel about the investment opportunity (i.e., it is
assumed that the company should be funded, the only question is at what price and
conditions!).
Your final report should cover the following topics:
1. Executive summary / Information memorandum (2 marks)
This should be a ONE page summary which highlights the most notable merits and areas of
risk of the investment opportunity. It should contain your recommendation regarding the
funding decision, the funding amount, price, and main purposes of funding.
2. Background (4 marks)
You should provide analyses and appropriate commentaries regarding:
 Current owners, management team, personnel and compensation
 Market and industry competitiveness analysis
 Products and production and operational strategy
 Use of proceeds
3. Financial analysis, projections and valuation (15 marks)
 Peer firm selection and justification
 Relative Valuation using a justified choice of multiple(s)
 Derive and justify all assumptions on the state of the market and the industry
 Detail any assumptions on development stage of the company and its strategy
 How do these assumptions translate into forecast future cash flows?
 Discounted Cash flows based valuation (based on the comprehensive Damodaran
example)
 Any other valuation techniques considered appropriate for the selected company
 Some historical financial analysis to identify obvious risks to cash flows, if
necessary.
 Triangulating various valuation estimates and determining a valuation range.
4. The deal/term sheet (8 marks)
 A proposed term sheet detailing, share price, pre and post money valuation, types of
securities, and any other terms that accompany the investment.
 Detail the pre and post-money ownership structures and discuss their implications if
any.
 Discuss and justify the types of securities used and other key funding terms in the
term sheet.
 Outline the path to liquidity i.e proposed future exit strategies.
5. Bibliography (not usually in this type of report but this is a uni assignment! This is
not in word limit)
 Use Harvard style referencing.
 Industry reports, analyst reports
 Academic papers
 Newspaper articles
6. Appendices with supporting documentation (if needed, not in word counts)
 More detailed justifications of main assumptions
 Additional tables involved in the production of the financial analysis
 Extracts of most relevant reports and statistics
8. EXCEL model
This is not part of the assignment report but must be submitted separately (via email). This
should contain your financial model (and all the details and calculations that feed into your
valuation). Make sure that the Excel file looks professional and is easy to understand and
navigate. E.g. state your inputs and assumptions, use hyperlinks and label clearly your Excel
sheets. Formulae should not be suppressed and important calculations must be carefully
annotated. USE COLOUR HIGHLIGHTS.
Focus of the report:
Do not use too much space in providing a background on the firm, as this information is in
the most part provided to you. Rather the focus should be on coming up with financial
projections and proposing a structure for any potential deal. You should use and expand on
the information available to you to create justifications for your recommendations. Do not
simply repeat the information provided to you.
Target Audience: As your target audience is partners of venture capital funds, your report
must take into account the usual objectives, concerns and practices of VC partners when
making private equity investments. Where appropriate, the report may also utilize relevant
theories of private equity investing.
Comparison with peers: To highlight the merit of your investment proposal, you should
make comparison with other similar companies or even the entire industry. This comparison
is especially useful for valuation based on multiples, and to derive the appropriate cost of
capital. Financial data should be obtained for listed firms in the same industry or those
offering similar products. A good starting point is to find a list of firms in the same Standard
Industrial Classification (SIC) code as your firm (see
https://www.osha.gov/pls/imis/sicsearch.html). Data on US firms’ SIC codes will be made
available through Moodle.
Word limit:
There is 3000-word limit for your report (not including tables, charts, bibliography and
appendices). You are reminded that one of the assessment criteria is “conciseness” and that
your GPs (and your time-poor lecturer) will probably not enjoy reading through a 50 page
document when they come to assess your proposal. Include detailed and less relevant
information in the appendices and refer to them in the body of your report.
Detailed financial projections should be based annual figures and the associated assumptions
should be included in the Appendix.
Research Resources:
The following resources may assist you in your research with your company:
The most important resource is the SEC filings/prospectus of your chosen company. This
contains detailed descriptions about the business and previous financial performance, and
should be used only as the initial point of your research. It is important that you expand
beyond this available information. Sections of your assignment that directly copy the filings
in whole or in part, without your own input, will attract negative marking.
Company Website: offers basic information and profile of the company.
MarketLine Advantage: Useful for industry/market related information and analyses.
Factset: offers basic pricing information for comparable listed firms. All students will have
access to the online version of Factset. Factset instructions will be posted on the course
Moodle page.
Mergent Online: Similar to Factset but contains more detailed information, including
financial information and annual reports for peers and other firms in the industry. Access
through the library website.
Datanalysis: all information on Australian listed firms. Access through the library website.
Yahoo! Finance: offers basic pricing information for comparable listed firms.
Crunchbase: like a Wikipedia for startups. A community-based database of the startup
ecosystem, providing good data on investment rounds and also valuation.
Pitchbook: similar to Crunchbase but not as useful given that most data are hidden.
Factiva: Full-text newspaper articles and industry analyses. Access through the library
website.
Assessment Criteria:
The following criteria will be used for assessing your funding proposal:
 How well you evaluate management and personnel, marketing and sales, operational
and production plans and whether you provide appropriate assessments of qualitative
factors contributing to the likelihood of success of the business in the future given
the stage of funding of your selected company.
 Whether your financial projections provide a good prediction for the company based
on your understanding and evaluation of management and personnel, and marketing
and production plans.
 Whether the methodology and assumptions you use for your valuations are sound and
well researched.
 Whether the structure of the deal is the most appropriate for the growth of the
business as well as being acceptable to the VC firm partners.
 Whether information in the report is CORRECT, CLEAR and PROFESSIONALLY
PRESENTED. That is, it covers a reasonable amount of the required information and
that there were no errors, inconsistencies, grammar and spelling mistakes.
 Whether the report is CONCISE. It should not go into too much detail, should not
waffle on. Instead, it should emphasise on the main selling points and put appropriate
detailed information into the appendices.
 Whether the analysis in the report is COMPELLING. That is, it is interesting,
insightful, impressive, and well supported by facts.
Due Date and Assignment Submission:
 Due date: Friday 21st April 2022 at 5 pm (Week 10)
 The Excel file containing your quantitative analysis must also be submitted via email
to your lecturer as part of the final report.
 Both files must be submitted via Turnitin on the Moodle page. All word materials,
including appendices but excluding the Excel file, must be PDF’ed and submitted as
a single document.
A late penalty of one mark (out of a total of 30) per normal calendar day applies to the late
submission of any of the reports by their respective due dates.
Support and Consultation:
The assignment is expected to be of high standards, both in terms of contents and
professionalism. Your lecturer will provide additional help during the official scheduled
meeting times and the lecturer will also clarify any expectations related to the assignments in
some lectures. You are also encouraged to talk to other groups about the assignment. You
can do research and share data with another group doing the same company. Good luck with
preparing your assignment and I hope you enjoy the task!