Reference no: EM132574418

Case background

• When Joyce and Phil Abrams opened their bookstore one year ago, they estimated it would take them six months to break even. Because they had gone into the venture with enough capital to keep them afloat for nine months, they were sure they would need no outside financing. However, sales have been slower than anticipated, and most of their funds now have been used to purchase inventory or meet monthly expenses. On the other hand, the store is doing better each month, and the Abramses are convinced they will be able to turn a profit within six months.
• At present, Joyce and Phil want to secure additional financing. Specifically, they would like to raise $ 100,000 to expands their product line. The store currently focuses most heavily on how-to-do-it books and is developing a loyal customer following. However, this market is not large enough to carry the business. The Abramses feel that if they expand into an additional market such as cookbooks, they can develop two market segments that, when combined, would prove profitable. Joyce is convinced that cookbooks are ian important niche, and she has saved a number of clipping from national newspaper and magazines reporting that people who buy cookbooks tend to spend more money per month on these purchases than does the average book buyer. Additionally, customer loyalty a month this group tends to be very high.
• The Abramses own all of their inventory, which has a retail market value of $280,000. The merchandise cost them $140,000. They also have at a local bank a line of credit of $10,000 of which they have used $4000. Most of their monthly expenses are covered out of the initial capital with which they started the business ($180,000 in all). However, they will be out of money in three months if they are not able to get additional funding.
• The owners have considered investigating a number of sources. The Two Primary ones are a loan from their bank and a private stock offering to investors. They know nothing about how to raise money, and these are only general ideas they have been discussing with each other. However, they do have a meeting scheduled with their accountant, a friend, who they hope can advise them on how to raise more capital. For the moment, the Abramases are focusing on writing a business plan that spells out their short business history and objectives and explains how much money they would like to raise and where it would be invested. They hope to have the plan completed before the end of the week and take it with them to accountant. The biggest problem they are having in writing the plan is that they are unsure of how to direct their presentation. Should they aim it at a banker or a venture capitalist? After their meeting with accountant, they plan to refine the plan and direct it toward the appropriate source.

Question

Question 1. If you were advising the Abramses, how would you recommend they seek additional capital? Be complete in your answer.

Question 2. Would this venture have any appeal for a venture capitalist? Why or Why not? Explain in detail