ServiceForce: Scaling up Financing
(10 pages of text)
The founder of ServiceForce, a company that provides repair and maintenance for motorized two-wheel vehicles in India, has a dilemma about whether he should sell the rights of his franchisee business, join hands with a venture capitalist, borrow money for capacity building or see the business grow through franchising. The start-up was initiated with his own money and family investment. A mere 18 months has shown great success with two service stations, a mobile workshop to service rural and industrial clients and a system of card packages that allow customers to pre-pay for a range of services. The company is a recognized brand for customer satisfaction and quality workmanship, and the employees are happy and contribute to the company well-being by participating in customer promotion schemes. However, competition from both vehicle manufacturers’ service stations and unorganized garages is growing in tandem with the skyrocketing sales of two-wheel vehicles, especially to the younger demographic. In order to grow, the company is at a crossroads: should it borrow money to ramp up the growth of the business through new capacity building or invest in more franchises? Should the owner accept the offer to buy the franchise rights from him outright or the offer from a venture capitalist, which will result in losing some control?
- To do a detailed valuation including calculations of costs of capital and expected cash flows and to learn about the valuation of privately held firms from the perspective of both the founder and a venture capitalist.
- To identify and understand different valuation assumptions and adjustments.
- To analyze a firm’s overall business model and the desirability of financing this venture.
This case is suitable for an MBA course or an advanced undergraduate course in entrepreneurial finance, managing growth (new venture growth strategy) and valuation of business, especially valuation of a start-up. It can also be used in an executive program for senior and middle managers in general management, strategic management or business valuation courses.
India, Small, 2012
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