NewCO Company’s Due Diligence for Investment

Investor’s Profile

I am an investor. I have a certain amount of money, and I am eager to support some start-up companies. I would prefer to invest in the projects in an early stage because I need to assess the perspectives of this or that start-up. With my experience, I can provide a proper judgement of the existing trends and market tendencies and predict which company can achieve success and prosperity and which one cannot. I am ready to invest not more than 250.000 euros in a single project. Consequently, if the calculations provided in the business plan exceed this amount, some additional sources should be found. However, I am willing to co-invest with other public funds or business angles, so it would not be a problem.

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Bio start-ups make my major investment interest. I believe that biotechnologies are the most perspective and vitally important at present. They can make the future of business. I suppose that attention should be paid to the projects that suggest technologies able to maintain natural resources and use renewable resources instead.

I am going to participate in the development of the project I invest in. I have enough spare time to dedicate to the selected project and provide its development and implementation. I will do my best to make my investment not only pay off but also pump up the value. However, I prefer small teams to big ones because it is easier to see what the other member is doing and thus the cooperation becomes more efficient.

Strengths and Weaknesses of NewCo Business Plan

Technology

NewCO is a new technology that needs financial support. It is a mobile charger that was designed for the lasting and simultaneous charge of up to six mobile devices. The innovative approach includes the use of solar energy for the functioning of the charger. The project is going to be realized in Kenya, a country with mostly hot and sunny weather. This technology would provide the population of areas with no electricity an opportunity to charge their mobile phones without the necessity to travel to distant electrified places. Although the application of solar energy is not a new technology and has been successfully implemented in many countries, it is new for Kenya and can become a breakthrough for locations that lack electricity.

The business plan includes only one protective strategy for the device. An overcharge protection circuit is going to be applied to provide the safety of the battery. Moreover, it is aimed to control proper charge and extend the lifespan of the device. Taking into consideration the fact that the company does not plan a service to repair the device in case of necessity in the country of application, this protective strategy is important.

After the analysis of the business plan, it can be concluded that the entrepreneurs will have “freedom to operate freely” due to the absence of significant competitors in Kenya in general and in non-electrified locations in particular. The existing kiosks mainly operate using electricity. Consequently, the entrepreneurs that would choose the NewCo charger will not be involved in serious competition. The suggested product is unique because it provides multiple charging points, supports any brand of mobile phones, and USB connection makes it universal for charging any USB-compatible device.

The financial plan of NewCo does not allow for a protection strategy specifically. However, if an overcharge protection circuit is considered a protection strategy, it is included in the financial plan as a part of device production costs. The business plan does not include a detailed development plan with timelines. However, it includes the fixed and variable costs necessary for the project implementation and successful functioning during the following five years.

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On the whole, the technology is well presented in the business plan. However, it can be useful to develop a detailed timeline to present every stage of the project development. Also, some protection strategies should also be included in the business plan to assess the possible risks and secure all stakeholders in case of unexpected circumstances.

Value Chain

The value chain described in the business plan supports the model of direct sales selected by NewCo. The value chain allows the company to reach the end-users because it is properly structured and includes all the necessary stages. Thus, there are constant and changing elements of the value chain. The sourcing components and design, engineering, and production do not change and can be applied with any business model. At the same time, the distribution, sales, and end-user servicing can alter in case there is a necessity to change the business model. The element of distribution and sales comprises the stages necessary to reach the end-users in Kenya. These stages are shipping, warehousing and distribution, and direct sales to kiosk owners who finally charge phones for end users.

The complementary assets are controlled by the company. However, the sourcing components such as solar modules, batteries, plastic modules, etc., are produced in China. Design, engineering, and production are provided in the cooperation of the United Kingdom and China. Thus, it can be concluded that the downstream industry is fragmented.

On the whole, the value proposition is clear and well-developed. It substantiates every element of the value chain. Moreover, it is designed to make the product available for the end-users and profitable for the manufacturers. Thus, the use of sourcing components produced in China is explained by their price, which is lower than that of the European Manufacturers even with the consideration of the shipping expenses. At the same time, the company is going to ship the products “ready to be sold” to Kenya, which does not demand any additional facilities except for a warehouse in the country of destination.

The value chain can need some adjustments. For example, the company can find alternative suppliers of the sourcing components to avoid problems with the assembly of the devices in case of unpredicted problems with transportation from China. In addition, more attention should be paid to servicing end users in Kenya in case customers have any complaints.

Business Model

The business model developed by NewCo includes several value propositions. These propositions consider the significance of continuous revenue inflow without any operating cost, deal with alleviation of poverty, encourage the growth and prosperity of the society, promote the application of renewable energy, and suggest a sustainable and highly scalable product.

NewCo applies a considerable approach to the issue of pricing. The major pricing objectives are as follows. First of all, the company suggests the consideration of the maximum market share. It means that the company should achieve the breakeven volume due to the boost of sales volume soon after the project beginning. Secondly, attention should be given to maximum market skimming, which is crucial for achieving the target audience at the beginning of the project. The third focus in pricing is on the customer value, which means that the price of the product should allow the customers to return their investments not later than in three months. Finally, it is necessary to consider the breakeven point which should be achieved by the company within the second year of the project implementation.

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The company provides the analysis of pricing models in the business plan. First of all, the project implements a cost-plus model. It is used to provide the cost-plus calculation for the following five years, which includes fixed cost, variable cost, and the expected sales volume. Another pricing model used by NewCo is customer value-based. It considers the need of potential customers for the service provided by the device that the company is going to produce. Thus, the market research studied the number of phones that are charged daily in a kiosk in Kenya and the price the customers pay for the service. This information was used for the development of a proposition for kiosk owners whose capital invested in the NewCo mobile charger is going to pay back within the period of three months.

The company is planning to apply one price strategy. It means that it will suggest the same price nationwide. In case this price appears to be higher than the customers can afford, the company is ready to reduce the price to a lower margin level to broaden the audience able to buy the device. Moreover, the company is ready to introduce a micro-finance loan to stimulate customer’s purchases. The company plans to earn money due to the increase of units sold every following year. For example, during the first year, NewCo is planning to sell 1,000 mobile chargers, while five years later, this amount is going to reach the figure of 20,000.

However, this plan seems risky. This growth strategy is ambitious, but the probability of its implementation can be assessed only after the project is launched. The prognosis of the sales volume is not reflected in the market research and thus cannot be certain. Setting a new business is always a challenge for manufacturers. Thus, further sales will depend on the success of network creation and customers” confidence acquisition. It is possible that the sales volume picks up from the third year, but the real figures can be lower than expected by the company.

On the whole, pricing strategies seem adequate. The consideration of the customer value is necessary for such regions as Kenya because the high price of the product that is going to enter the market will prevent the increase of sales and, as a result, will not bring profit to the project. Moreover, it can be necessary to review the income statement after the first year of the project implementation based on the real sales and the customers’ feedback.

Market

The project suggested by NewCo is aimed at the market of Kenya, one of the best developed and economically successful countries of East and Central Africa. Out of its population of 39 million people, more than 19 million are active users of mobile devices. However, more than 12 million of them live in areas without electricity and have to travel long distances to charge their phones.

The company applies a single targeted customer-based approach to assess the market and predict the number of NewCo devices necessary to charge the phones of the target audience. Moreover, the company defines the people in rural areas as its target audience. They do not only lack electricity supply but also have a relatively low income. However, they still need their phones to contact their families, colleagues, or business partners. I believe the company applies an appropriate market segmentation prioritizing the dwellers of the rural un-electrified areas because for the people who have electricity, the charge of the phone is not a daily challenge, and thus they are not prospective customers for the company.

The business plan also includes a brief roll-out strategy of the company. Thus, NewCo does not plan to work with Kenya only. The company sees the expansion to other Sub-Saharan African countries in the future as a part of their plan in case their project for Kenya is successful. This intention can be too ambitious, but it still has a research basis. Thus, the investigation of the Sub-Saharan African population provides a prediction that the population without or with limited access to electricity will grow. As of 2008, there were 587 million people living in un-electrified areas, and the situation is not going to improve. The prediction is that by 2030, there can be about 700 million people in Sub-Saharan Africa living without electricity. At the same time, the number of active mobile phone users is expected to increase. This analysis of the market timing looks realistic and provides grounds for the company’s development.

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On the whole, the market analysis provided in the business plan is not merely concentrated on the business side. First of all, it addresses the need for charging devices in rural areas without electricity. Secondly, it stimulates the development of the private business sector, allowing people to become entrepreneurs by starting their business with charging kiosks. Finally, it addresses the social aspect that is not less important than the business one. Thus, the project helps the people to stay connected because, for many of them, their mobile phones are the only source of information and communication. Nevertheless, it can be necessary to evaluate the buying opportunities of the target population because the fact that the people need to charge their phones does not mean that there are many perspective entrepreneurs ready to bring the service to the local market through the charging kiosks.

Team

The business plan provides a good impression of the project team. They look like an efficient and competent team which is one of the major strengths of the project. I suppose they have the necessary skills to launch the project. The fact that the team provided the research of the primary marked is proof of their proficiency and the skills of strategic thinking. At present, the team includes the project developers. There is one CEO in the company which is the founder of the business. During the first year of the project implementation, he is going to work as a volunteer without payment. This approach proves his business skills and the ability to set priorities that are critical for a CEO. The team also includes designers and engineers and is based in the UK. However, there is a plan to hire freelancers during the 2nd and 3rd years to reduce the cost of redesign and thus decrease the final price of the product for the customers.

In the process of the project launch, they are planning to employ a province manager to provide the effective execution of the “hub & spoke” model. This person will be responsible for the hub and its stock. Moreover, this person will hire a team leader who will manage sales and hire direct sales agents to work directly with the consumers. Such an approach to personnel in the country of the project implementation is rational because of some reasons. First of all, the local employees do not need additional accommodation that saves the costs for the company. Secondly, they know the peculiarities of the market and the end consumers better, and thus their sales can be more efficient due to the greater trust of the local population. The aspect of transportation is also going to attract the local forces. Apart from the cost-effectiveness for the company, this approach to a labor organization in a new country creates new workplaces, thus contributing to the increase of people’s prosperity and the resulting growth of buying possibilities. The company also attracts third parties to fulfill some duties. Thus, the accounting and the legal handlings, as well as the market research, will be provided by the third parties.

Financial

NewCo’s business plan has a well-developed and substantiated financial part. It follows a logical structure and is divided into a fixed and variable parts. Fixed costs include human resources, services rendered by third parties, infrastructure and operations, marketing, and the product itself. The variable cost comprises components cost, assembly, and production, sales expenses, costs spend on shipping and distribution. The assumptions of the company look realistic. They expect revenues during the second year of the project implementation, and it is an achievable result. However, the growth of the revenue can be a little exaggerated. The costs are properly calculated and include the most significant aspects. The sum of the necessary investment is sound. The financial commitments of the company are clear and logical. On the whole, the financial part of this venture is realistic.

Proposal for the Improvement of the Business Plan

On the whole, the business plan presented by NewCo provides a good impression. It has an innovative component, is grounded on market research, provides a careful financial calculation, and is going to be profitable. However, it can benefit in case some aspects are included. First of all, it is worth thinking of some protective strategies. Apart from the protection of intellectual property and technical protection of the device itself, there is a necessity to develop a protective strategy for the team members, investors, and employees in case of unexpected circumstances that prevent the successful project implementation. Secondly, it can be useful to re-evaluate the growth of revenue because it looks exaggerated. Finally, it is necessary to predict and evaluate the possible risks that can appear during the implementation process. The mentioned interventions will contribute to the general presentation of the project and will increase its value for the investors.

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