After completing the New Ventures class in the lubar School at UWM, the growing

Question

After completing the New Ventures class in the lubar School at UWM, the growing network of entrepreneurial-minded people in Milwaukee brings you in contact with a UWM professor who has great science and a looking for some business expertise to help launch a company Together, you co-found a company. NewTechCo. to commercialize technology to measure blood glucose levels over the phone by measuring changes m the pitch of a person's voice The company leverages the skilful intellectual property management support of the UWM Research Foundation which has filed two utility patent applications related to the technology. The professor's work to date has been supported by $200,000 from ho startup package that he used to build the hot laboratory version of an instrument based on the technology In addition, a National institutes of Health (NIH) grant of S8S0.000 has helped refine the instrument and gain important validation data As shrewd entrepreneurs, you don't want to bring in investors too early and give up too much of the company, so you apply for an SBIR "fast track" grant This grant combines a Phase l and Phase - SBiR and your company is awarded $750,000 to build a commercial prototype of the instrument and work with an endocrinologist to show that the instrument works After refining your business plan, you're ready to seek venture faience You're seeking to raise $2 million from venture capitalists to allow you to deploy the system at the Cleveland Clinic which has agreed to pilot the system if you can get the financing You've also identified the perfect industry insider who you want to lead the company in its next phase - a woman from a medical device firm in Minnesota that successfully commercialized FDA-approved medical devices, but you can't convince her to relocate to Milwaukee until you complete the fund-raising for this round (good help doesn't come cheap). Your business plan includes the following financial projections as shown in Table 1. The business model calls for selling the device to hospitals and doctor's offices that will use it to screen their patients for diabetes and will bill for the service using already approved CPT codes. Screening for diabetes is not new. however screening over the phone is new. Solve using the one of these valuation methods: Cost basis, income basis, earning multiples.

Explanation / Answer

Solution.

Note: Since in the given problem Present Value Factor or rate of interest are not given, we have not considered present value of figures in the solution.

Method 1. Cost Basis

Calculation of total cost

Method 2. Income Basis

Calculation of income over the years

Method 3. Earning Mutiples

Earning Mulitiple = Total Income / Total Cost

Earning Mulitiple = $6049500 / $3800000 = 1.592

Amount ($) Startup package fund 200000 + NIH grant 850000 + Fast Track grant 750000 + Venture Capitalists funding 2000000 Total Cost of project $3800000

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