Endeavor: Miami Heats Up
Endeavor Global was a nonprofit that for 15 years had worked to nurture entrepreneurship in emerging markets by selecting local high-impact entrepreneurs for mentoring and aid in scaling up their businesses from committed local business leaders. In summer 2012, Endeavor received an invitation to replicate its model in Miami, Florida, and the Endeavor board was meeting to debate the value of such a move. At issue were questions of organizational mission and the relevance of Miami, as well as branding, funding, and focus. The invitation had come in the midst of a major expansion effort by Endeavor into new emerging markets and threatened to disrupt those efforts and tax a new hybrid funding model which Endeavor was implementing. Founder Linda Rottenberg, with the support of her board, must determine the implications of possibly opening in Miami on Endeavor's resources and mission. How could Rottenberg justify to overseas affiliates a choice to invest in a first-world city?
Keywords: social enterprise;
emerging market entrepreneurship;
not for profit;
hybrid nonprofit funding;
Mission and Purpose;
Problems and Challenges;
Sahlman, William A., Ramana Nanda, David Lane, and Lisa Mazzanti. "Endeavor: Miami Heats Up."
Harvard Business School Case 814-043, November 2013. (Revised December 2013.)
The TELUS Share Conversion Proposal
On February 21, 2013, TELUS announced a proposal to convert the firm's non-voting shares into voting shares on a one-to-one basis, thereby eliminating the firm's dual class structure. Shareholders were scheduled to vote on the proposal at the firm's annual general meeting (AGM) on May 9, 2013. Despite strong support from management, the board, two proxy advisory firms, and several large shareholders, the proposal was opposed by Mason Capital Management, a New York-based hedge fund. Mason, which controlled almost 20% of the voting shares and a large short position in the non-voting shares, had filed a dissident proxy circular recommending that shareholders vote against the proposal based on both procedural and substantive grounds. With the success of the vote in doubt, the board had to decide what to do. Should they proceed with the vote as planned, postpone the vote with the intention of re-introducing the proposal at some point in the future, or cancel the proposal for good? And what should they do with Mason, which management viewed as an "empty voter" in this matter?
Keywords: proxy contest;
Glass Lewis ＆ Co.;
dual class shares;
Business and Shareholder Relations;
New York (city, NY);
Do Measures of Financial Constraints Measure Financial Constraints?
Financial constraints are not directly observable, so empirical research relies on indirect measures. We evaluate how well five popular measures (paying dividends, having a credit rating, and the Kaplan-Zingales, Whited-Wu, and Hadlock-Pierce indices) identify firms that are financially constrained, using three novel tests: an exogenous increase in a firm's demand for credit, exogenous variation in the supply of bank loans, and the tendency for firms to pay out the proceeds of equity issues to their shareholders ("equity recycling"). We find that none of the five measures identifies firms that behave as if they were constrained: public firms classified as constrained have no trouble raising debt when their demand for debt increases, are unaffected by changes in the supply of bank loans, and engage in equity recycling. The point estimates are little different for supposedly constrained and unconstrained firms, even though we find important differences in their characteristics and sources of financing. On the other hand, privately held firms (particularly small ones) and public firms with below investment-grade ratings appear to be financially constrained.
Financial Services Industry;
The Costs of Favoritism: Is Politically-Driven Aid Less Effective?
As is now well documented, aid is given for both political as well as economic reasons. The conventional wisdom is that politically motivated aid is less effective in promoting developmental objectives. We examine the ex-post performance ratings of World Bank projects and generally find that projects that are potentially politically motivated—such as those granted to governments holding a non-permanent seat on the United Nations Security Council or an Executive Directorship at the World Bank—are no more likely, on average, to get a negative quality rating than other projects. When aid is given to Security Council members with higher short-term debt, however, a negative quality rating is more likely. So we find evidence that World Bank project quality suffers as a consequence of political influence only when the recipient country is economically vulnerable in the first place.
Keywords: World Bank;
United Nations Security Council;
Prejudice and Bias;
Outcome or Result;
Government and Politics;
Power and Influence;
In early 2010, Naval Ravikant and Babak Nivi posted a list of angel investors on the Venture Hacks blog as a resource for founders looking for funding prior to seeking venture capital. The list quickly evolved into AngelList, a separate matchmaking platform for founders and investors to make early stage fundraising more efficient. By June 2013, AngelList had garnered substantial media attention, and was used by many high profile angel investors and venture capitalists. It had approximately 100,000 startups and 18,000 accredited investors. Since the site was launched, almost 40 startups on AngelList had been acquired, and over 2,000 startups had been funded. For most entrepreneurs, posting a profile on AngelList had become as commonplace as setting up a personal profile on Facebook or LinkedIn. Most recently, the site added Invest Online, a new product that in partnership with SecondMarket, allowed accredited investors to make small investments—as low as $1,000—in startups at the same terms as larger investors.
While the co-founders were proud of AngelList's growth, as of June 2013, they were not charging for its use and had not yet determined its business model. Ravikant and Nivi wondered if they should reconsider and have AngelList apply for broker dealer status so it could charge transaction fees, but they were reluctant to enter what they considered a regulatory minefield. The recently passed JOBS Act was expected to relax constraints around crowdfunding, and Nivi and Ravikant knew that would be a logical extension for AngelList as well. Finally, they wondered if they should avoid any potential regulatory issues altogether and instead focus on generating revenue primarily from recruiting and other ancillary services.
Keywords: angel investors;
Financial Services Industry;
Nanda, Ramana, and Liz Kind. "AngelList."
Harvard Business School Case 814-036, September 2013. (Revised November 2013.)
Qatar: Energy for Development
Despite being the richest country in the world on a per capita basis, for analysts Qatar belongs in the group of emerging markets considered "frontier markets." This case analyzes the strengths and weaknesses of the development strategy of this small country as set forth by Emir Hamad bin Khalifa Al Thani, who ruled from 1995 to 2013. In 2013, for the first time in Qatar's history, Emir Hamad passed on control of the government to his son Tamim peacefully and Tamim, as Emir, promised to continue with the development strategy of economic diversification set forth by his father. Yet, it is not clear if the ambitious investments in infrastructure, education, tourism and real estate Emir Hamad made were enough to steer the economy away from its dependence on gas exports.
Keywords: frontier markets;
sovereign wealth funds;
Musacchio, Aldo, Colin Donovan, Samir Mikati, Rami Sarafa, and Abdulla AlMisnad. "Qatar: Energy for Development."
Harvard Business School Case 714-003, September 2013. (Revised November 2013.)
The Case of the Unidentified Industries—2013
Helps students to understand how the characteristics of a business are reflected in its financial statements. This case consists of an exercise in which students are given balance sheet data in percentage form and other selected financial data for companies in 14 industries. The specific task assigned to the student is to use the balance sheet data along with their basic knowledge of the operating conditions and characteristics of these 14 industries to match each industry to the correct data.
Keywords: financial statements;
Harold Mills at ZeroChaos (A)
After leading a management buy-out, Harold Mills transformed ZeroChaos into a global staffing enterprise. Poised to raise additional capital to fund the company's next phase of growth, he was also confronting the liquidity demands of his early-stage investors and relationships were becoming strained.
Keywords: legal aspects of business;
Business Growth and Maturation;
Gordon Brothers: Collateralizing Corporate Loans by Brands
The case explores the collateralization of intellectual property in a loan agreement between a highly leveraged apparel company and a large US bank. Leveraging intangibles in the credit market is a new practice that has significantly grown over the past few years. However, estimating their liquidation value is not directly intuitive, since intangibles are highly illiquid assets and have uncertain future cash flows. Can banks reliably secure corporate loans by intellectual property, and how can they alleviate the challenges in estimating a loan-to-value ratio for this collateral?
Keywords: Intangible assets;
HgCapital and the Visma Transaction (A)
This case concerns the negotiations of a deal by HgCapital, a UK-based private equity firm, to buy Visma, ASA, a Norwegian software company. Visma has received an offer from Sage Group, a strategic acquirer. HgCapital must determine if it wants to bid and how to outbid a potential strategic acquirer. The case concerns bidding and negotiations strategies as well as deal structuring issues. In particular, the cross border nature of the investment, a UK firm investing in Norway, leads to a number of financing issues related to raising the debt for the LBO. The case provides an opportunity to role play both the PE fund perspective and the potential target.
Keywords: private equity;
Gompers, Paul A., Karol Misztal, and Joris Van Gool. "HgCapital and the Visma Transaction (A)." Harvard Business School Case 214-018, August 2013.