Honest Tea Case Analysis
Honest Tea : Case Study
The Company ‘Honest Tea’ is currently at a survival stage. The company needs to break even and is looking for sustained investment to carry it to profitability and aid its expansion plans.
The company can achieve this through diversified sources of investment:
It can accept the 5 million dollar funding from a Venture capital firm which would boost its its sales and help in rapid expansion nation wide. The disadvantage would be that Goldman has to sacrifice some control over the company and also agree to a lower pre-money valuation.Where as if he raises the 2 million dollar funding needed from Investor’s circle, he would still maintain control of the company and continue towards expansion just slower. This would be in line with Honest tea’s statements for social and environmental responsibility.
The drawback to this and raising money from individuals investors being the time and effort he will need to put into it.
Honest Tea should raise the investment from Investor’s circle. By doing so, the company
can fetch a higher pre-money evaluation. Furthermore the projected need for financing is 2 million dollars and Honest Tea would do well to avoid excess investments and loss of control at the growth stage.
The disadvantage of managing a group of investors can be solved by hiring an agent in charge of investor relationship. This would allow Goldman to concentrate on the company’s operations.Though this may increase agency costs, Goldman’s time is precious and would help him to concentrate on strategic decisions.
Goldman can also solve the problem of absence of a strategic team by hiring outsiders. He can also setup a Board of representatives for the company. The representatives can be outsiders qualified to assist Honest tea in its future operations.
This would allow him to actively chart the path of the company and retain control.
Raise funding from Investor’s circle and tap existing investors for the remaining amount.
Goldman can also prevent the dilution of the company by issuing warrants and retaining the right to buy the warrants at a later period if needed.
During the summer of 1983, Bob Reiss observed with interest the success in the Canadian market of a new board game called “Trivial Pursuit.” His years of experience selling games in the U.S. had taught him a rough rule of thumb: the sales of a game in the U.S. tended to be