Enterpreneurial Finance - Conor MedSystems Case

Conor MedSystems

 

1.      How attractive is Conor MedSystems as an investment?

 

Ans:

 

Venture Opportunity Screening Guide (VOS)

	Potential Attractiveness
Factor Categories	High	Average	Low
Industry Market
Market Size potential	3
Venture Growth size	3
Market Share		2
Entry Barriers	3
Pricing/Profitability
Gross Margin		2
After-tax Margin		2
Asset Intensity	3
Return on Assets		2
Financial/Harvest
Cash Flow Breakeven		2
Rate of return		2
IPO potential		2
Founder’s control		2
Management Team
Experience/Expertise	3
Functional Areas	3
Flexibility/Adaptability	3
Entrepreneurial focus	3
Total points by ranking	24	16
Overall total Points (OTP)		40
Average score (OTP/16)	40/16 = 2.5

 

The overall rating of the company is 2.5. It’s an attractive company. The biggest drawback of this company is that the product is already in market and will have to compete with big players like J&J. Any investor will have second thought before selecting this.

 

2.      What are the major risks?

Ans:

• Not able to get the proper financing: Initial investment required for this company is huge as lots of research and development activities have to happen along with trials before this product could be launched in market and before the company could start getting any profit.
• This product will have to competing with big players and J&J already announced that its product Cypher will have 0 restenosis.  It would be difficult for any company to compete in such scenario.
• Wrong timing as it was during September 11^th and no VC’s were ready to invest during that period.
• If the product does not pass through the government regulations.

 

 

3.      Discuss the pros and cons of the various funding sources that Litvack is considering.

Ans. Different sources of funding are

• Venture Capitalist:
• Pros:
• VC’s are good source of capital
• They provide valuable guidance as board member
• They leveraging their relationships to hire a strong management team.
• They discipline the undisciplined company.
• They are in for a long time and become allied with management in raising future rounds of capital
• They rarely abandon their investments.

           

• Cons:
•  They have superficial understanding of the business
• Tremendous dilutions of management and founders and create tension.
• Only interested in return and limited partners. This sometimes results in different opinion as to what should be done with the company.

 

           

• Corporate Venture capitalist
• Pros:
• They could give credible signal to others.

 

• Cons:
• First right to buy the company
• They are not always there when needed.
• They are not the lead investors.

 

• Financial Investors
• Pros: Its less valuation-sensitive
• Cons: They leave the management

 

• Wealthy Individuals
• Pros: Its more focused on the opportunity and less on valuation
• Cons: They have less patients

 

• Medical Device Distributors
• Pros: Overseas distribution
• Minimal equity or lower prices
• Once the product is ready, they are the best place to go.
• Cons: Low capital than other source.

 

 

 

4.      How much capital should Conor raise and what sources should they raise it from?  Why?

Ans: Conor have to raise $ 30 million. The first 15 million, as per Litvack can be raised from their existing investors. I would suggest them to go for the existing investors and the remaining $15 millions they have to get from other sources. I would suggest for VC’s and Medical Device Distributors. They both have more pros which help build the company and expand their market. For example Medical Device Distributors could open the door for their distribution in no time and less marketing expense would be required. And VC‘s are well know for their professionalism in maintaining and disciplining the company. There are other advantages as well for selecting VC like they have experience and stay for a longer period of time.