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Valhalla Partners Due Diligence Case Solution

Solution Id Length Case Author Case Publisher
1934 670 Words (3 Pages) William A. Sahlman, Dan Heath Harvard Business School : 805033
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Valhalla’s due diligence process is in reaction to the bubble which upon bursting led to the fall of venture capitalists commitment as low as $ 12 Billion. Therefore, due diligence was a necessary strategy to be adopted. There were some benefits for the process such as by working with smaller funds and fewer partners with fewer deals close relationship with the management will be established in order to make the venture successful. However, it was most time consuming process which is associated with the risk of unsuccessful deal. Moreover, the chances of opportunity of closing the deal without any gain are high; hence, the risk of loss is greater.

Following questions are answered in this case study solution

  1. Should Art Marks vote to make an investment in Telco Exchange?

  2. What valuation do you think is appropriate?

  3. What do you think are the top 3 risks facing Telco Exchange? Why? 

  4. What is your assessment of Valhalla's due diligence process? What is the most significant benefit of the process? What risks does this process present?

Case Analysis for Valhalla Partners Due Diligence

1. Should Art Marks vote to make an investment in Telco Exchange?

Telco Exchange is a perfect fit for the newly founded Valhalla as it is IT oriented and situated in the mid-Atlantic region. Moreover, the company is serving the vital demands of customers by providing the highly integrated software solution. Additionally, though it is experiencing competition lately; however, TX is able to maintain its product advantage, and it is able to attain a winning situation in competition with the competitors. Besides, one of the criteria for assessing the deals is the strength of the management which is a weakened position in case of TX. However, changes can be brought into the management and the current CEO has agreed for such change. Nonetheless, the company was not a great deal at all prices. Therefore, if the CEO of TX will agree on the $5mm pre-money valuation, Mark should vote to make an investment in the company.

2. What valuation do you think is appropriate?

For valuation purposes, both the company and Valhalla valued the TX on the basis of their assumptions. However as far as the Valhalla is concerned it has used a more conservative approach on the basis of the assumptions that the $250,000 will be averaged in the summation of one time software revenue per deal, the one-time services revenue and the 20% annual maintenance costs. Also, initially the salesman will average one deal per quarter, which will increase up to 1.25 deals per quarter. As such conservative approach of Valhalla’s model seems appropriate as the assumptions taken, are more reasonable as stated in the exhibit one.

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