Question

Dalma IT Software consultancy and solutions venture raised a 150 thousand pond in 2011 from family and friends, and they become a successful company in terms of  IT, data engineering. with anticipating 120% growth since 2015, they going to enter a Large agreement worth 1,000,000 ponds with a famous financial service sector. The firm requires a 250,000 pond working capital in 12 months to be able to fund this expansion.

Since the management of the company is price sensitive and do not want to borrow excessive money that could cost them higher. Therefore firms require to create bridge financing depend on the contract to link the shortage of cash flow gap with working capital prior to an equity fund.

we consider venture capitalize and cash line as the best financial option for the company.

1)Consider and explain the valuation issues associated with the chosen financing option

2)Compare financing option to alternative financial options at the same point in the ventures progressions

3)Compare the impact on your financing option if the venture was to proceeds to liquidation rather than maturity

4)How can you assure that your financing options do not dilute owner ship incentive to an unreasonable level?

Founding a profitable business usually looks attractive for investors

Answer 1

Since the management of the company is price sensitive and do not want to borrow excessive money that could cost them higher, DALMA IT Software can borrow funds through overdraft facility from the banking institutions on the basis of their credibility. This option has a very low interest rate and moreover, it offers the facility to withdraw the money from the bank over a regular interval of time without needing to pay excessive interests. Regular fulfilment of the needs will also ensure that the management do not overdraw money from the bank.

Advantages:

An overdraft loan gives you immediate access to extra funds when you don't have any left. Ideal for temporary financial issues, unexpected expenses or emergency costs, an overdraft gives you the comfort of knowing you will always have financial back-up.

Disadvantage:

The amount of money you can access through your overdraft tends to be lower than with a personal loan.

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