Part B: WHCP Persuasive Memo Assignment

Date: August 23rd, 2015
Subject: Investment Recommendation
The investment team recommends that $1 million of funding should be awarded to Startsmall over Healthyeat. Startsmall’s primary objective is to provide microloans and microbusiness training and support to low-income individuals in Central and South America. The team assessed the Startsmall’s viability of based on the following criterion: 1. Industry Trends – From an industry perspective, the microfinance industry has faced some headwinds due to pressure from activists accusing institutional lenders of profiteering from the poor. In response to this negative perception, Startsmall’s innovative approach to build a crowdfunding platform provides a new avenue for lower income individuals with access to 1-3% interest. Results from more established players such as Kiva demonstrates a 98% repayment rate which affirms that the crowdfunding approach is a sustainable business model. 2. Financial Impact – The team expects an 8% return on equity based on the assumption that Smallstart will remain a profit generating business. The team forecasts a 4.0-5.0x M-o-M if the company can expand its use base to approximately 500,000 clients in the next 4 years. With a sizeable customer base across South and Central America, regional banks who are actively seeking profitable microfinance ventures would be interested to acquire Startsmall at a premium valuation. 3. Social Impact – In comparison to Healthyeat, Startsmall’s funding usage demonstrates a higher multiplier effect on creating social impact. The company aims to develop new technology that can dramatically increase the efficiency of loan serving and lower costs per client. This new initiative could improve access to microloans and therefore provide more opportunities for low income individuals to set up or expand their businesses. As a result, the growth of the SME industry would contribute to the local economy’s vitality. 4. Management Team – Smartsmall’s management team is young and energetic. The CEO’s startup experience in building the microfinance division at the World Bank exhibits a higher inclination towards innovation and growth. Although Healthyeat’s management team has more industry knowledge and access to senior members of government, their lack of entrepreneurship experience could lead to challenges in rolling out their business into the US.
The team foresees some political risks associated with the investment in Startsmall. We expect that political uncertainty, potential changes in financial regulations and red-tape in less developed Central and South American markets can impede the expansion of Startsmall into lesser developed markets in the region. The firm may also face stiff competition from government-subsidized local micro financing organizations, creating higher barrier to entries for external players to penetrate into the local market. One solution to mitigate these political and bureaucratic risks is to launch briefing sessions with the relevant authorities on Startsmall’s value proposition and preference to work in tandem with local governments to develop the small-medium enterprise industry.
Based on Smartsmall’s robust financial and social impact forecasts, innovative business model of transition towards a crowdfunding platform and their management team’s technical knowledge and entrepreneurship experience, the investment team seeks your approval for a $1 million investment.