Alvin Einstein is what is often called a serial entrepreneur. In the past 17 years he has owned nine businesses including a commercial laundry, two restaurants, a paving company, and a lumber yard. Alvin has done quite well, turning a $1.5 million trust fund that he received when he celebrated his 25th birthday into nearly $13 million. He recently came across a new business that appeals to him: The Dim Bulb Company. The Dim Bulb Company is a lighting equipment firm that specializes in manufacturing specialty items such as low-light and cool operating bulbs, and novelty Christmas tree lights in various shapes, including cows and horses. The company has existed for 23 years and has always been owned by the Light brothers, Hyman and Gray, who were generally referred to as High Beam and Low Beam. The Light brothers were ready to retire and wanted to sell their business. The company had revenues of $30 million and Operating Cash Flow of $6 million. The Light brothers felt the business was worth $30 million and were unwilling to give a buyer terms so that part of the purchase price could be paid over time. Alvin is ready to commit half his fortune, or about $7 million, to the purchase and now needs a financial plan to raise the other $23 million. He realizes he has several options: Alvins family is quite wealthy and probably would finance $10 million. Unlike many family investors, they only want to do the deal on competitive business terms that any private angel investor or private company would accept.

The Dim Bulb Company owns a building and land at their Florida factory that is worth $5 million. Alvins bank has said they would lend him $4 million against the building and another $15 million based on the companys profitability. bankable business plans for entrepreneurial ventures 190 Dim Bulb recently began subcontracting manufacturing to several foreign companies and Alvin thinks that one or more of the subcontractors might be interested in investing in Dim Bulb.

A venture capital group with several large investments in the lighting industry is interested in buying 80% of the equity and allowing Alvin to purchase the other 20%, but they want to put as much debt on the company as possible before layering in the equity investment. The Light brothers want a proposal within two weeks and Alvin promised them one. Now he has to develop a financial plan.

Case Questions: 1. What are Alvins financing options?

2. From Alvins point of view, what are the pluses and minuses of each option?

3. How does the option of foreign outsourcing change Alvins options?

4. Which option would you recommend to Alvin and why?