CULTUS FUNDING READINESS REPORT. 1 May 2017

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1 FUNDING READINESS REPORT st 1 May 2017 Note: This report has been prepared by business, industry and financial experts relying on the various documentary submissions of the company. These include their investment pitch, promotional videos, marketing material, business plans, strategic plans and other documents requested by us. One on One meetings with the Founders have been conducted to get clarity on the state of the business, to accurately assess the business opportunity, to provide investors with a fair sense of investability of the business venture.

2 C O NT E N TS 1. Overall Qualitative Commentary 3 2. Overall Funding Readiness Score 6 3. Funding readiness Score by Criteria 6 4. Strengths 7 5. Areas of Focus 8 6. Recommended Funding Strategy 9 Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 2

3 OVERALL QUALITATIVE COMMENTARY Potential of the Idea: Mobile Apps are proliferating at a rapid rate, aided by the boom in smart phone usage. There is a need for credible testing companies that can provide credible performance & security testing and certification. While the service itself is not unique or disruptive in nature; it is a niche market with an established need and high growth potential. Score Percentile of Peer Group - 91 Corporate Setup: XXXX is a private limited company with three directors incorporated on 10th June The company is registered and headquartered in Hyderabad and has a staff strength of 55 employees including 7 management staff. The company is adequately supported for statutory and legal matters through external consultants. Score Percentile of Peer Group - 88 Market Size & Opportunity: The estimated market size for mobile app testing globally is USD 1.9 billion and USD 650 million in India. It has grown at 12% CAGR over the past three years and is estimated to grow at 16% CAGR over the next four years. The company is among the top two players in its segment in India and all players put together (approx. 8-10) have barely scratched the top layer of the market. Score Percentile of Peer Group - 93 Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 3

4 Competitive Advantage: The company has an early mover advantage. It has built proprietary applications and applied for a patent for the same. The application coupled with its established workforce & processes has resulted in a client list in India of the largest ecommerce & web based companies. It also has overseas clients in the major markets like the US and Europe. Score Percentile of Peer Group - 84 Quality, Skill & Diversity Of Team: The company is led by its founder Mr. XXXXXX and a group of two other co-founders. One of the founders at the start of the venture exited amicably in March The team has the requisite domain experience and diversity of skills to execute on its stated growth plans. The founders are into their second startups with a reasonable exit from the earlier venture three years ago. Score Percentile of Peer Group - 62 Product / Service Maturity: The service of the company is well established and its product developed with the requisite standards. The service and product are well documented and regular improvements made based on market feedback. Client feedback has been consistently high and client retention is greater than. The marketing and advertising spend may be underestimated in relation to the business size, maturity and growth plans. Score Percentile of Peer Group - 93 Executable Business Plan: There is a documented business plan for the future growth plans of the company. There is clarity of ownership and accountability for the various components of the plan. The plan is realistic and seems achievable at the pace it is set. The requirement of the resources and skills as per the plan are normal with no possible show stoppers from an availability perspective. Score Percentile of Peer Group - 81 Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 4

5 Financial Robustness: The company broke even at an EBITDA level 14 months ago and will report nett profits for the financial year ending March The revenues for the year ending March 2016 are at USD 0.6 million and the EBITDA at USD 0.08 million. The March 2017 revenues are estimated at USD 1.1 million and EBITDA at USD 0.19 million. The accounts of the company adhere to the current accounting standards and are up to date. Score Percentile of Peer Group - 79 Investability: The promoters are inviting an investment of USD 300K for a 15% equity stake. They are open to non-equity options as well. The company currently has 8 shareholders and has raised 10K from the primary promoter, 15K from other promoters and 32K from friends & family. The offer is based on a professional valuation using the weighted average discounted cash flow method. Funds raised will be deployed within the company. 28% will go to retire bank loans resulting in saving of interest costs and the balance will be deployed to scale the workforce and the technology resulting in a eight fold increase in revenues and threefold increase in EBITDA. Score Percentile of Peer Group - 94 Exit Strategy & Probability: The most likely exit, after the company receives its patent and further consolidates its market position, is like through an acquisition by a global web or IT player. Other options for early stage investors are to exit in future rounds of funding. The current shareholding agreements are loosely worded with exit options for current shareholders not clearly articulated or agreed to. Score Percentile of Peer Group - 96 Governance & Risks: There is a market and technology risk in a large global player releasing free testing kits for mobile apps. However, this should only cause a minor ripple in the overall market as the commercial players will continue to use rigorous and independent credible testing companies. The statutory compliances are in place and the financial controls adequate for the current size of the business. Board meetings are informal with no formal minutes maintained. Score Percentile of Peer Group - 79 Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 5

6 CULTUS OVERALL FUNDING READINESS SCORE % for Company XXXXXX th Percentile of closest peer group FUNDING READINESS SCORE BY CRITERIA Potential Of Corporate Market Size Competitive Quality, Skill Product / Setup & Service Advantage & Diversity Idea Opportunity Of Team Maturity Executable Financial Investability Exit Governance Business Robustness Strategy & & Risks Plan Probability Score XXX Percentile of Peer Group Note: 1. The minimum score for funding readiness is with an overall percentile to peer group of a minimum of 65% 2. Higher the score the better the funding readiness under the criteria; except for risk, where a lower score means lower risk 3. The minimum score for risk is 485 at which point the venture is too risky for third party funding Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 6

7 STRENGTHS The company is well setup with high quality accounting and governance standards and has broken even at an EBITDA level. The management team is highly skilled and possess the requisite domain knowledge and diversity of skills to execute the business plan. The product of the company is pending patent with a provisional patent already granted. The market reception has been positive and the client list is impressive. The client churn rate is in single digits with client acquisition costs for long term annuity contracts at less than 2% of total contract value. The growth of the company has been impressive with a sizeable market opportunity available with significant valuation upside for the investor. Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 7

8 AREAS OF FOCUS Friends & family have been issued equity with a fairly loosely worded shareholding agreement with no clear exit option agreed to. The founders have been self or closely funded thus far and an assessment of their compatibility with external investors in day to day functioning and overall governance needs to be assessed. Some significant but non material statutory filing dates have been missed but do not pose a risk to the financials of the company. Advertising and marketing spend may be under estimated in the business plan. The founders need a more robust founder's agreement and a non-compete clause. Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 8

9 RECOMMENDED FUNDING STRATEGY The company should get an updated valuation report as the current report is more than six months old and significant positive changes have occurred since then. A focus on High Net Worth Individuals, Angel Investors and early stage investors in the technology space will be more rewarding. The company must reach out to potential investors in other parts of the world as the proposition is global and easily identifiable with the value it brings for any investor. The company should be open to having a holding entity overseas if an investor requires it. This will complement its globalization strategy as well. The company must appoint a professional investment advisory company for fund raising of this size and complexity, as none of the founders have raised institutional funds in the past. Disclaimer: This report is a subjective analysis and opinion of an independent subject matter expert based on documents provided by the company and one on one meetings with the founding team. This report is also relevant for the limited period during which the facts do not change and /or there is no significant change in the business environment. For any clarifications you are encouraged to contact Natio Cultus Consultancy Pvt. Ltd. at info@natiocultus.com This report is intended for general guidance and information purposes only. This report is under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. Please note that this is not an offer document. The report is to be considered as marketing material, and is not prepared in accordance with the regulation regarding investment analysis. The material in the report is obtained from various sources per dating of the report. All reasonable care has been taken to ensure that the material is true and not misleading, The estimates are based on fair assumptions supported by objective data. The estimates are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. There may have been changes in matters which affect the companies subsequent to the date of this report. This report does not regard any specific investment objectives, financial situation or the particular needs of any specific person. The contents of this report are not to be construed as legal, business, investment or tax advice. Each recipient should consult with its legal, business, investment and tax advisors as to legal, business, investment and tax advice. Investors should understand that statements regarding future prospects may not be realised, and should also understand that past performance is not necessarily a guide to future performance. All investments mentioned in this report have attached risk of loss. Natio Cultus Consultancy Pvt. Ltd. do not accept any form of liability, neither legally nor financially, for loss (direct or indirect) caused by the understanding and/or use of this report or its content. This report is only intended for the recipients, and should not be copied or otherwise distributed, in whole or in part, to any other person. This report is subject to Indian law, and any dispute arising in respect of this report is subject to the exclusive jurisdiction of Indian courts. Private & Confidential NATIO CULTUS CONSULTANCY PVT. LTD 9