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Easier Framework for VC cases?

Digital & Vegan Restaurant Franchise
New answer on Jun 03, 2020
5 Answers
3.1 k Views
Anonymous A asked on Apr 19, 2020

Hi there,

I have seen the framework proposed in this case, and my feeling was "Wow! I'll never be able to structure a complete 6-area framework.
What could have been an easier framework to develop?

Potential answer:

1. Profitability

  • Price --> is this business diversified and able to be a price-maker, rather than a price-taker?
  • Costs --> is the structure of the business well thought?


2. Scalability

  • Growth Areas - Retail - Franchise - Other ways
  • Growth Capabilities - Competitive advantage over others - VC impact on growth
  • Growth Opportunities - Market Scenario - Exit opportunities

Thank you

Anonymous

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Daniel
Expert
Content Creator
replied on Jun 03, 2020
McKinsey / ex-Interviewer at McKinsey / I will coach you to rock those interviews

Hi,


Firstly, there is no “right structure” – any case can have multiple answers, so do not worry too much about not being able to replicate this particular structure. As long as YOUR structure is logical, creative, MECE and has hypotheses, you will rock the task.


Secondly, be careful with what question you are answering. It is not a structure for “VC case”. It’s a structure, which answers the question asked here, which is: "What do you think are key factors which would influence how VegDigi will perform economically in the next 5 years?”. I.e. “What factors?” vs “How would you evaluate this investment” – these are 2 very different questions. If you start answering the latter in the interview – you will fail.

It’s very often that in McKinsey interview the structuring question asked does NOT refer to the overall case, but rather to the part of the case. So, you need to be careful that you answer the question asked vs just creating a structure for the case (at McKinsey it’s called “attention to detail” – and it is very important).

Hope this helps!


Best,
Daniel

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Luca
Expert
Content Creator
replied on Apr 19, 2020
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello,

I usually suggest to structure VC cases based on a profitability framework and then to compare the cashflows with the initial investment (NPV). Remember to do some considerations on how the actual cashflows can evolve in the future and what are the Risks&Opportunities for the future.

Feel free to text me if you want to discuss this further, it should be quite easy to structure a case like this.

Best,
Luca

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Anonymous updated the answer on Apr 19, 2020

Hi there,

Great question, having been on all sides of the problem (MBB, VC, Entrepreneur), I would say that ultimately when VCs are looking at a potential investment they want to see if this investment will be able to return the whole fund size in 5-10 years (depending on the horizon), so we're talking 20x+ money multiple. Regardless of the structure, it's important to keep that in mind as every Investment Committee's decision boils down to this question.

Now, to help remember the structure better, the easiest way is to think of it in terms of a startup pitch (you can find some good examples here https://www.alexanderjarvis.com/pitch-deck-collection-from-vc-funded-startups/#decks). The general structure would be:

1. Problem (pain or need) that's being addressed - in this case, environmental and health concerns connected to animal farming as well as due to animal rights activism supporting the vegan trend

2. Solution - how it addresses the problem - in this case, it's more or less self-explanatory, but it's good to have a sanity check that you're really solving the problem you're stating

3. Competitive advantage - How you are going to do it better, cheaper or faster, etc.? Who are the big competitors? Why do you win? Are you targeting noncustomers? What is so hard about what you are doing? What is hard for others to replicate? Why hasn’t someone else done it? In this case, we need to understand whether the market is already saturated and whether VegDigi competitive advantages such as IT system provide a sustainable edge over competitors

4. Target market - What's the size of the opportunity? Is this market growing? Who's the target user? Here we can also look into geographic focus (Europe in this case?)

5. Business model - How do you make money? How much does it cost to acquire a customer? What is customer lifetime value? Any other relevant metrics? Here we can analyze the costs of VegDigi and potential

6. Initial traction - What have you sold? Why not? What your customers are saying about you? Partners? One of the most important questions, especially for a later stage VCs. In this case, there's not much traction (just 3 restaurants and no franchises), so I would consider this as a more early-stage bet and pay more attention to other points

7. Team - Why are these the right people to take this opportunity forward? There are not many details in this case, however in the early-stage investing it's one of the key things to look at

8. Scaling strategy and vision - What is the growth strategy? What are your goals and KPIs for the next year? Next 3-5 years? There are not many details in this case, but ultimately this is what helps to answer the question of whether or not the investment can return 20x over the investment horizon

Sorry that I'm giving you even more points here, but that's pretty much the structure most VCs and startups follow during pitching and initial screening. It's quite logical and once you see a couple of real pitches (e.g., SharkTank?) you remember it pretty well.

Hope this helps, don't hesitate to reach out if you have any further questions!

Best regards,

Vasily

(edited)

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Vlad
Expert
replied on Apr 20, 2020
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

It depends on the stage of the business. The key things to look at the early stages:

  1. Team (Industry expertise, Previous exits, insights)
  2. Problem / solution (Timing, Insight, defensibility, etc)
  3. Traction (MRR, LTV, CAC, etc) or early signs of traction (MOUs, etc)
  4. Market size (ideally >1B), TAM, SAM, SOM. Competition

Best!

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Clara
Expert
Content Creator
replied on Apr 19, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Best would be to ping the author, he is in PrepLounge ;) ;)

Cheers,

Clara

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Daniel on Jun 03, 2020

Thanks, Clara :)

Daniel gave the best answer

Daniel

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