Avid Radiopharmaceuticals & Lighthouse Capital Partners Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Diagnosis

This paper attempts to analyze the situation of Avid Radio pharmaceuticals Company which is a small and a promising firm in the industry in the area of life sciences firms and analyzes the situation that whether the company should take on venture capital financing in the form of venture debt and whether Lighthouse Capital Partners, the venture capital firm should provide the financing.

Christy Barnes, who is the managing director of Lighthouse Capital Partners, is in the favor of the venture debt financing to be provided to Avid Company however, a number of questions need to be answered which would be raised from the Investment Committee of Lighthouse Capital Partners. The reason for this is that this is not a typical investment for the company and there are many characteristics surrounding the investment which are different than the past investments made by the company.

Furthermore, another factor which is making the decision a more difficult one is the uncertain economic conditions of the market in 2008. Therefore, the venture capitalist and also the CEO of the company need to determine the true risks, costs and the benefits of taking this loan. The advantages and the risks associated with lending venture debt and not lending it need to be also analyzed from the perspective of Lighthouse Capital Partners and a final recommendation needs to be made.

Analysis

A range of issues has been analyzed before the alternative options for this decision are considered and a final decision is made. These issues are as follows:

Venture Debt & Other Financing Alternatives for Start-Ups

Venture debt is one of the means of venture capital financing which is provided to the venture backed firms by the non-bank lenders and the specialized banks. The venture debt financing is made to the companies in order to fund the costs of these companies associated with capital expenses, working capital etc. Venture debt is made only to the start-up companies that do not have significant assets which they can provided to the banks for taking on a loan and providing collateral or those firms that are having negative cash flows. However, in order to compensate for this higher risk, the venture debt providers usually include the rights to purchase the equity or warrants along with the loan which is provided.

There are also other financing means for Avid Company which the company could raise in order to fund the phase II trials and the phase III trials that are about to take place for the most promising compound of the company, the AV-45. This compound addressed the Alzheimer’s disease. The first financing method for Avid as a start-up and growth oriented company is crowd funding, which is one of the funding type which has recently been popular among the start-up companies in the market.

Under this method anyone can help the business to make significant contributions in the business. All the details about the future plans and the strategies are conveyed to the target audience through a suitable platform and then anyone can contribute if they believe in the company. Another financing alternative for the company is to basically raise the financing through an angel investor. These are wealthy individuals who provide the necessary financing and this makes it possible for the company to maintain control over its business.Avid Radiopharmaceuticals & Lighthouse Capital Partners Case Solution

However, looking at the size of the required financing for Avid and its other investors, this option is not recommended at all. A third alternative for a start-up company like Avid is take a small business loan however, in this case, convincing the bank might prove to be difficult as Avid Company is looking forward to raise the required financing in order to extend the runway. The company needs more time currently in order to perform its trials easily and that the compound really works for the business. Therefore, the most suitable option for the company, in the current economic downturns seems to be to raise the required $ 7.5 million financing through a venture debt.

Reasons for Taking Venture Debt for Avid Radio pharmaceuticals

There are a number of reasons due to which Avid Radio pharmaceuticals Company wants to raise the required financing through a venture debt. These reasons are listed as follows, which also highlight the advantages for Avid Company to take venture debt at this point of time.............................