Essay on Aberlyn Capital

2583 Words Dec 4th, 2013 11 Pages
Executive Summary
The venture leasing deal that Aberlyn proposed to RhoMed is an innovative way for RhoMed, a start-up firm, to acquire financing without diluting its equity value and raising debt in the market. Management believes that the firm is more valuable than venture capital firms would believe, and debt financing would be extremely costly since RhoMed doesn’t currently have positive cash flow. For Aberlyn, the main benefits of the transaction are the interest payments paid on the lease and potential to sell the patent for a much higher value than the original $1 Million valuation by RhoMed. However, this is a rather risky investment for Aberlyn. If RhoMed defaults on its payments, Aberlyn uses the patent as collateral and
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This patent may actually capture a smaller portion of the market share than Lulu believes; this is because the product is highly individualized and not commercially feasible. If it is difficult for this new technology to capture as much market share as is predicted by Lulu, then Aberlyn will have difficulty selling the patent if and when RhoMed cannot meet its payment obligations. Another reason why it may be more difficult for Aberlyn to sell the patent is that much of the patent’s value is derived from the fact that RhoMed’s scientists have a lot of expertise in the area they are researching. If another firm that didn’t have the same level of human capital necessary to realize the full value of the patent bought the patent then they might value it less.

1. Benefits: RhoMed can continue on with its business activities while maximizing its control of equity. Without the deal, RhoMed needs to find external financing from places such as banks until its IPO likely around 1994. Since RhoMed is a new company with negative cash flow, limited resources, and limited partnerships, most external sources of financing will be costly. Further, RhoMed’s founders want to retain their equity. Since most other venture capital firms want 30% equity, Aberlyn’s offer is attractive.
2. Costs: While the costs of maintaining the patent, such as defending it, are shifted to Aberlyn, RhoMed still bears additional leasing costs, which are similar to a loan and include both principal

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