Advanced Business Computers Limited - Teaching Note

Organisational Behaviour, Entrepreneurship

1995

Adrian Bailey, Managing Director of Advanced Business Computers Limited (ABC), sat round a table with his two fellow directors and joint owners of the company. They had just come out of a first meeting with a venture capital firm. The meeting had been friendly and they had been impressed by the way in which the venture capitalist had been able to talk about the business. However, the idea of selling equity was difficult to accept. After all it was their company and its future profits that were at stake. Up until now, apart from the three directors' original equity investment, almost all of ABC's external financing had come from Barclays Bank. However, a new business opportunity now required additional financing of £750,000 to fund working capital and the bank manager had flatly refused to advance this. In fact the manager seemed more concerned about Barclays' outstanding loan to ABC even though the company had a successful track record to date. The loan was formally callable on demand and this made Bailey uneasy. Moreover, the personal guarantee, which the directors had provided as further security for the loan, seemed even less likely to be waived in the foreseeable future. This caused the directors further concern. The directors had always been reluctant to sell equity in the past as it would mean diluting their stakes in the company. In particular for Bailey, equity finance would mean losing his position as a majority shareholder. But now the three directors had to make a decision about the future: What value did they put on the business? What objectives did they have? If they did raise outside finance, from whom should they raise it? What kind of terms and conditions should they expect to be offered by either a banker or a venture capitalist? What sort of deal should they accept?

Financing, Entrepreneurship

Computers

1987-91

TN-94-002

EU FP5

Entrepreneurship

No