SSFIV Venture Capital recently received three business plan proposals. We have some available funds, so we should put that money to use by investing in one of these three companies. Mid-Atlantic Recycling is a compost manufacturer that is using human waste sludge as its source material. Mother’s House Cleaning Service is a maid service focused on upper income homes. Finally, Marrowstone Advertising Consultants is an advertising agency for nonprofit institutions. While all three of these companies have their merits, the standout in the group is Marrowstone Advertising Consultants.
Marrowstone is a limited liability partnership founded by Curtiss Cole. Mr. Cole served as a marketing executive for the Boy Scouts of America. He also worked with the Sierra Club and the Audubon Society. These experiences give him direct, high-level experience in the field of nonprofit advertising. Mr. Cole is joined by David Danielson. Mr. Danielson also has tremendous experience in the advertising business. He worked for Ford Motor Company for 10 years and was also the chief marketing executive for the Boy Scouts of America. The company has also identified a chief financial officer and an audio-visual director.
The company plans to harness Mr. Cole’s and Mr. Danielson’s experience with the Boy Scouts and focus directly on nonprofit advertising. This is an emerging market with a huge pool of potential clients. Marrowstone will focus on three types of nonprofits.
2. Youth development
Environmental nonprofits consist of organizations such as the Sierra Club, Word Wildlife Fund, and the Nature Conservancy. Due to the recent green movement throughout the world, this is the fastest growing group of nonprofits. The youth development nonprofits are some of the largest and most well capitalized organizations in the country. The Boys and Girls Club, 4-H, and the Girl Scouts fall into this category. Finally, the cultural group is made up of a huge number of smaller institutions such as museums.
The first two of these types play to the experience that Mr. Cole and Mr. Danielson have acquired throughout their careers. In the Washington, D.C. area, where the company will launch, the cultural group makes up almost 50 percent of the nonprofits. Additionally, the company’s three focus categories account for nearly 75 percent of the nonprofit landscape in this area. The following figure illustrates these statistics.
The majority of the financing for Marrowstone is in place. The managing partners have contributed 73 percent of the company’s anticipated start-up requirements. Our investment of $27,000 would buy us the remaining 27 percent interest in the agency. This funding should pay off quickly.
While management foresees a loss in its first year of operation, all following years are expected to be profitable. In fact, the company predicts monthly profits to start in the second half of the first year. Despite the initial losses, no cash flow problems are anticipated. The company predicts positive net cash flows starting with the tenth month of operation. In case of a shortfall in sales, the firm also established a $60,000 line of credit. The figure on the following page demonstrates the company’s cash flow projections.
Conclusions and Recommendation
Mid-Atlantic Recycling has an interesting business idea with a virtually limitless supply of raw materials. However, the company doesn’t have a good indication of the demand for its product and disposing of excess materials would be costly. Contrarily, Mother’s House Cleaning Service offers a service that will have demand. However, competition in this industry is fierce, and it would be difficult to successfully enter the market.
Marrowstone Advertising Consultants is a company set for success. The organization has a management team with experience and success in the industry. By focusing solely on nonprofits, the company can set itself apart from other advertising agencies. This specialization will endear the firm to its clients creating goodwill that will lead to an expanding customer base. With a modest investment, we can grab a part of a company that is positioned to take off.
Therefore, I recommend that we ask Marrowstone to give us a formal presentation of the business and immediately set aside the $27,000 that the company needs to get started.