Solution Pages: 8
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Word (.docx) & Excel (.xlsx)
Case Study Description:
Accel Partners’ European Launch
On April 12, 2001, Kevin Comolli, managing general partner of Accel Partners’ London office, looked up as Fearghal Ó Ríordáin, the firm’s principal and the only other investment professional hired to date, threaded his way through the construction debris and sat down at the opposite desk. Ó Ríordáin said, “Cape Clear called. They’re out of cash in six weeks and want to know if we’re going to give them a term sheet. “
Comolli sighed. Cape Clear was an Irish software firm founded by some of the top executives from one of Ireland’s first technology superstars. It seemed to have all the features Accel sought—a strong team, a good technology in a new and growing space, and a defined path to revenues that included a strong focus on international growth. Yet he also had some doubts. This would be the fund’s first investment, and the timing was not ideal. Accel Partners was still raising its European fund; Comolli was trying to recruit the team; he and Ó Ríordáin had just moved out of a serviced rental office and were trying to work in the middle of a construction zone; and they were still setting up the process for working with the California-based head office. On a macro level, the slide in the technology markets showed no sign of slowing and many U.S. firms had closed their European offices and cut their Europe-destined funds.
Questions Covered in the Case Solution:
- Would you recommend that Accel Europe make its first investment in Cape
Clear? Your answer should have a qualitative and quantitative component.
- Assume that O Riordain decides he wants to invest and that Greylock does
not invest with Accel. The term sheet should include: A. Pre-money Value,
B.Investment amount from Accel C. Additional option pool for management.
Explain and justify your terms. What IRR and MOIC do you expect it to
provide? Will Cape Clear accept it?
- Assume that Greylock decides to invest with Accel. Would your answer to
question 2 above change? Base on your answer, would you recommend inviting
Greylock to invest in the deal?
- If you were an institutional investor in private equity, would you
invest in Accel’s European Fund? Why or Why not
*(Assumptions: 1. The long-term Treasury Bond rate in Euros is 4.78% 2.
Long run inflation is 2%)
Sample of Solution:
Would you recommend that Accel Europe makes its first investment in Cape Clear? Your answer should have a qualitative and quantitative component.
Accel Europe has its parent firm, in the California United States, with its limited functionality in Europe. Whereas, Cape Clear in an Irish based European software firm, which is looking for the competent, experienced venture capitalists firm, who can not only provide the required investments for their potential products but also guide and mentor Cape through the progression of its operations. Cape Clear, has shown preference to partner with some U.S based venture capitalists, as it was still believed that European V.C would be less component as that of U.S. While considering the decision of making the investment in Cape Clear, it must also be realized that the Accel Europe would be conducting its first investment which would essentially test their procedures and formations they have made for the execution of any possible deal. Since it is the testing phase, the investment must be considered in higher risk bracket and hence eventually it must be dealt with peculiar prudent measures. So, while incarnating the impacts of time zone differences, high volatility of Cape’s existing market, concerns about its Sale’s model and the increased agency costs while executing the deal would bring down the decision of not investing in the Cape Clear.