Avid Life (A)
(4 pages of text)
Noel Biderman was the president of Avid Life Media, a profitable Canadian growth company whose main businesses were various online social networks for groups seeking sexual partners and romance. Biderman was seeking to raise $60 million via a private placement offering to acquire a privately held online advertising sales company, merge the companies, and take the new and improved entity to the TSX Venture Exchange or the Toronto Stock Exchange. The Avid Life offering represented a legal and potentially lucrative investment. Nevertheless, only one investment bank (GMP Capital) was willing to help Biderman raise capital — because among the various social networks Avid Life owned the notorious Ashley Madison online community for married people seeking to commit adultery. GMP’s relationship was short-lived; after media coverage of the Avid Life offering started to focus on the bank’s willingness to service Biderman’s company, GMP withdrew its support. Possibly it was the bank’s desire to avoid being linked to someone known, rightly or wrongly, as the king of infidelity, that led to GMP’s withdrawn support, leaving Biderman unable to take a potentially lucrative investment opportunity to market.
This case can be used in undergraduate and graduate courses involving organizational behaviour, values, ethics, investing, and leadership. The specific objectives are two-fold. First, the case can be used to debate two perspectives of the function of the firm: the shareholder perspective (“The firm is an instrument for the shareholder”) versus the stakeholder perspective (“The firm is an instrument of society”). Both camps will hold vastly different opinions when discussing whether GMP Capital should have entertained the idea of raising funds for Avid Life. For example, the shareholder perspective tends to see the investment as a great opportunity, and articulate that investment bankers are paid to support legitimate businesses with potential, not serve as society’s moral compass. Others will argue that a good business leader should meet standards of excellence in areas such as health, well-being, employment equality, and environmental performance that reflect positive societal trends when they see long-term benefits for their shareholders, customers, employees, and communities. GMP’s investment would not fit that idea. The case can also be used to discuss values and lay a foundation for ethics discussions by introducing ethical theories and their applications. The case can be taught during an 80-minute session, and can be co-taught with a professor from finance who can provide additional detail on the work of investment banks and the role of reputational risk.
Finance and Insurance
Canada, Small, 2010
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