Enterpreneurial Finance - Honest Tea #2

Honest Tea #2

 

1). What source of capital has Honest Tea used to date? Are these appropriate sources of capital? Explain.

 

Source of capital used for Honest Tea were following investors.

·         Family and Friends

·         Satisfied customers and angel investors

·         Investor’s Circle (IC)

 

All these investors except IC were not professional and therefore did not control significantly the board of directors and on company decisions. These were the two main reasons why Goldman and Nalebuff never went for professional investors, the Venture Capitalist. Both of them spend more time and energy raising the money. It would have been much easier for them to go for Venture Capitalist, though they would have to then compromise on the control over the company. But at lease VC would have given them much better support in terms of resources, not only capital but other valuable suggestions and directions to move the company forward.

 

 

2> Why does the company need financing at the present time?

 

The company needs financing for the following reason

·         After modest investment by Family and Friends, to further continue operation company needed financing.

·         Expanding the production and distribution channels.

·         Hiring of sales force. With Sobe’s acquisition by Pepsi,  their sales force were the best choice for Honest Tea.

·         To purchase marketing and merchandising materials such as coolers and other sales incentives

·         To get the Three Rivers Bottling production unit to profitability.

·         To introduce their product in new Supermarket chains like Safeway

·         Expand their Distribution channels

 

3> Use Exhibit 9 as a starting point. Use the Income Statement and Balance Sheet for 1999 as your starting point. Forecast balance sheet and income statements for 2000 through 2005 assuming that sales double every year. Use the percentage of sales forecasting method.

 

4> Based on your forecasts, how much external capital does the company require?

 

5> What sources of external capital should they use?

Following sources of external capital sources could have been used.

1.       Venture Capitalist: This is the best option but the disadvantage is that VC will look for more control for the company.

2.       Angel Investors:

3.       Private Equity: Was not so popular at that time.

4.       Family and Friends: Since this option was already used initially, this option is discarded