Title: Investment Brief Vehizero S.A.
1Investment BriefVehizero S.A.
- Final Report
- March 19, 2002
- Prepared for Mr. Sean OHea
- by the Fuqua Team
Fuqua Faculty Advisor Campbell Harvey Fuqua
Team Carlos Montalvan Jill Naughton Brian
OConnor Oleg Osipenko Jeremy Rogers
2Outline of the Material
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Our valuation of Vehizero sets a range between
3.3 million to 10.2 million, while the
projects IRR is estimated to be 14 - Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and other
countries internationally, first targeting
international development agencies and
socially-oriented VC firms, then approach wealthy
individuals as project reaches the next
development stage
3Outline of the Material
?
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overview of the work done
- Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Our valuation of Vehizero sets a range between
3.3 million and 10.2 million, while the
projects IRR is estimated to be 14 - Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and other
countries internationally, first targeting
international development agencies and
socially-oriented VC firms, then approach wealthy
individuals as project reaches the next
development stage
4Overview of the Work Done
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Researched web and literature to
- Understand overall trends in global hybrid
vehicle market - Understand Mexico automotive market
- Evaluated project Vehizero company valuation
- Identified key variables to be analyzed as key
variables (Tornado Simulation) - Looked at different scenarios and their
probabilities - Estimated the cash flows
- Calculated the cost of capital
- Evaluated the imbedded options of the project
- Analyzed the attractiveness of different types of
investors to Vehizero - Research of investment policies and objectives
- Interviewed VC specialists and academics
- Discussed the future of carbon trading with
Chicago Exchange
5Outline of the Material
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Overall Automotive trends point toward
intensifying competition, however, the truck
segment appears to be attractive - Moreover, the hybrid vehicle segment offers niche
opportunity for small players like Vehizero - Although Mexican labor costs are rising sharply,
the country will continue to have cost advantage
in foreseeable future - Our valuation of Vehizero sets a range between
3.3 million and 10.2 million, while the
projects IRR is estimated to be 14 - Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and other
countries internationally, first targeting
international development agencies and
socially-oriented VC firms, then approach wealthy
individuals as project reaches the next
development stage
?
6Overall automotive trends suggest intensifying
competition
MARKET OVERVIEW
- Automotive Trends in Mexico and worldwide point
toward increased competition - Increased competition. In 2004, local content
rules within NAFTA will be eliminated. Experts
believe competition will intensify as a result,
and margins of domestic producers will decrease - Toyota enters the market. Toyota will start
production of the light trucks in Mexico in year
2004 with full production taking effect in 2006 - Contraband. There are about 2 million illegal
vehicles or auto chocolates of the total 14
million cars in Mexico. Trucks assembled from the
used parts cost legitimate truck producers 1/3 of
their sales - Hybrids for Emerging Markets. Big Automakers
start focusing on producing simplified models for
emerging markets. In 2003, the world will see 9
models specifically developed for emerging
markets - Source Automotive News International /Mexican
Truck Producer Association/Automotive News Europe
These trends indicate that taxi market will be
much more difficult to penetrate than delivery
truck market
7However trucking industry appears to be
attractive segment
MARKET OVERVIEW
- The Mexican truck fleet is large. Estimated to be
450,000 units - Growing. At approximately 3 p.a.
- Old. Average fleet age is 16.3 years
- Not concentrated. There are some 5,000 trucking
firms in Mexico city, plus large number of owners
who own only a truck or two - And partially illegal. Approximately 20,000
trucks enter Mexico illegally - Source U.S. Commercial Service. International
Market Insight, 1999
Truck segment appears to offer some niche
opportunities to Vehizero
8Hybrid vehicle offers opportunity
MARKET OVERVIEW
- Several trends in the global hybrid vehicle
market indicate that this segment will remain an
attractive niche for small players like Vehizero - Different strategies. Different countries are
pursuing different strategies in the search of a
cleaner car. Japan is focusing on hybrid compact
cars, Europe on fuel cell technology (i.e. pure
electric vehicles), and US is focusing on hybrid
trucks - Top priority in the US. President Bush recently
requested that Congress approve tax breaks of up
to 4,000 per hybrid car and up to 8,000 per
fuel cell car - Its everybodys game. Large numbers of small
firms are involved production around the world - Emerging markets have local players. India and
Brazil are known to have domestic electric/hybrid
vehicle manufacturers - Big guns move in. Every automaker is either
already engaged in production of electric/hybrid
vehicles or announced a program to introduce the
first models in 2003-2004. As a result, the US
hybrid market alone is estimated to reach 500,000
in 5 years. - Hybrid cars are still expensive. Hybrid compact
cars are sold by Honda and Toyota in the range of
20,000 and hybrid trucks are priced at a 5,000
premium to their gasoline equivalent
Hybrid vehicles segment offers opportunity for
small players but the window of opportunity is
closing rapidly.
9Competition is coming from Big Automakers, but
not in trucks segment
- Honda Insight The Insight is the first
gasoline-electric hybrid vehicle to be sold in
the United States. This two-seat coupe gets 70
miles per gallon (mpg), and meets Californias
stringent ultra low emission vehicle (ULEV)
standards. It was endorsed by the Sierra Club and
heralded in the ACEEE's Green Book. Priced under
20,000, it is available through Honda dealers
nationwide. The 2002 model is available with
continuously variable transmission. www.honda.com
The Toyota Prius is a five-seat hybrid-electric
sedan that combines the range and performance of
a gasoline engine with the silence, efficiency,
and clean running of an electric motor. The
vehicle never requires external source
recharging. It meets California's Super-Ultra-Low
Emission Vehicle (SULEV standards. It is sold
nation-wide through Toyota dealers for 20,000.
www.prius.toyota.com
Even though every global automotive player has at
least one cleaner model, no company has yet
developed a light truck model
10 And Hybrid Vehicle Market Newcomers
MARKET OVERVIEW
- Electric Postal Vehicle by Baker Electromotive,
Inc and Ford are producing 5,000 electric postal
service vehicles for the US Postal Service. The
vehicles are battery powered and can be driven
between 50 and 80 miles before recharging. They
accelerate from 0 to 50 mph in 12.5 seconds and
produce virtually no tailpipe emissions. Email
Baker Electromotive, Inc, sales_at_vaenergy.com.
The Solectria CitiVan a walk-in delivery van,
comes in an all-electric or a hybrid-electric
model. Rugged construction assures long vehicle
life and low maintenance costs. Powered by the
same state-of-the-art Solectria technology found
in over 1000 EVs on the road worldwide, the
Solectria CitiVan is in service in Massachusetts,
California, New York, Canada, and Chile.
www.solectria.com
The delivery truck niche is being quickly filled
up by relatively unknown newcomers
11 Heavy/Medium Truck Companies in Mexico
MARKET OVERVIEW
- Navistar International, world leader in the
manufacture of trucks and buses, is on the
vanguard of corporate environmental reformThe
company has its own Escobedo Plant in Nuevo
Leon... Company has more than 1,100 dealers
worldwide, and 9 parts distribution centers - Source Business Mexico, December 1999
The company is also working with Lockheed Martin
to produce Hybrid Electric Vehicles (HEV), which
run from a combination of traditional diesel
engines and electric battery power. The two are
currently test driving a HEV medium truck and are
developing HEV school buses and delivery trucks.
www.navistar.com Sources American Chamber of
Commerce of Mexico, A.C. , 1999
Small delivery truck niche could potentially be
attacked by the large/medium truck manufacturers
12Still Mexican companies will retain labor cost
advantage over US rivals
MARKET OVERVIEW
- The 19-day strike earned VW employees a 14.7
increase in wages, from 25.50/day to 28.50/day
plus food coupons
- Yet the cost of one union worker in US is 120
to 190 per day
Source Guillermo Valdes, Economists Associates
Group, Mexico City
13 despite quickly rising labor costs
MARKET OVERVIEW
Labor costs are rising sharply but still much
lower than US level
- Real wages in the Mexican automotive industry
will increase 33 while productivity will
increase by 9 for the period of 2000-2004. - Armando Soto, Ciemex-Wefa economic consultancy
- "It's no longer an easy answer to produce cars in
Mexico labor costs in the industry have risen
50 in dollar terms since the end of 1998 - Economist Rogelio Ramirez de la O
- Output per head is about a quarter of what is
achieved in the United States given cooked and
tested technology and fairly simple production
lines, Mexico can match U.S. productivity rates
for some vehicles," - Sean McAlinden, analyst, University of Michigan
- Labor Unions are quite strong. Recent strike at
Volkswagen plant in Pueblo, ended with 14.7
wages increase
14Outline of the Material
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Our valuation of Vehizero sets a range between
3.3 million and 10.2 million, while the
projects IRR is estimated to be 14 - Valuation
- Risk assessment
- Imbedded options
- Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and other
countries internationally, first targeting
international development agencies and
socially-oriented VC firms, then approach wealthy
individuals as project reaches the next
development stage
?
15Funding Requirements appear to be higher than
initially estimated
VALUATION
- Funding requirements range from 4.1M to 6.9M
- Recommended funding 5.5M
- capital outlay of 3.4M
- 300K for prototypes
- 3.1M to build plant and WC
- 2.1M to sustain losses for 3 years
- expected accumulative accounting losses for three
years is 2.1M
16Approach to valuation
VALUATION
- Key variables
- Tornado? chart identifies key variables to
analyze and monitor - Probabilities and ranges
- Crystal Ball simulation
- Trucks Only
- Price, COGS, sales in full production
- Taxi Cab option
- Market size, price of taxis (assumed margin), 1st
year penetration, growth during following years,
cost of expansion
17Key Variables used in the valuation
VALUATION
- Tornado? chart to identify impact of variables
9,500
18Simulated Key variables
VALUATION
HYBRID TRUCKS DATA Price Post Plant Truck
COGS Terminal Quarterly Sales Rate TAXI OPTION
DATA Price Penetration (i.e. Market Share) 1st
Year of Taxi Sales Penetration Growth Rate (from
1st Year Market Share) Quarterly Market Size for
Taxis 1st Year of Taxi Sales Plant Expansion
Costs
19Cost of Capital
VALUATION
- Cost of Capital 17.9
- ICCRC (International Cost of Capital Risk
Calculator) 18.9 - Based on a risk free rate of 5
- Risk premium of 5
- Anchored to the US
- Adjustments -1
- Vehizero has mitigated some risks because you are
aligned with government and environmental
initiatives - Company exposed to most standard risks in Mexico
-
- ICCRC calculates the cost of capital for 135
international capital markets. It provides an
alternative calculation to the CAPM and other
traditional approaches that are less accurate for
emerging markets. The ICCRC return reflects
countries risk premiums based on a comprehensive
methodology with strong economic foundations.
The ICCRC accounts for risks such as a countrys
economic and political stability. It is also
anchored to the U.S. rate, so that the country
rates are calibrated from that of the US. The
intent is to adjust the denominator for
countrywide affects.
20Internal Rate of Return of the Project is around
14
VALUATION
- We have performed 25 runs of the model to
determine the IRR for both taxi and truck
markets. The results are summarized below
21NPV of the trucks only ranges from 3.3 million
to 9.6 million
VALUATION
Mean 1.02 M Entire Range -3.3 M to 9.6 M
22NPV of the project ranges from 3.3 million to
10.2 million
VALUATION
Mean 1.30 M Entire Range -3.3 M to 10.2 M
23Cost of Capital
VALUATION
24Taxi option increases the upside but does not
mitigate the downside
Taxi option is attractive only if truck market is
a success. Thus, taxi option does nothing to
mitigate the downside risk for the investor
25Each variable is affected by variety of economic
factors
RISK ASSESSMENT
- Price fluctuations
- Competition
- Increased cost of labor
- Ability to shift all supply purchases to Mexico
- Economic crisis / recession / inflation
- Sales
- On time production development
- Ability to produce and sell at full capacity
- Dependence on price fluctuations
- Competition
- Taxi option
- Execute option to expand into taxi market
- Ability to penetrate market
26Sovereign risk is low
RISK ASSESSMENT
27Pre-completion risk is low with certain ability
to mitigate it further
RISK ASSESSMENT
28Operation risk is moderate with little ability
for Vehizero to mitigate
RISK ASSESSMENT
29High financial risk with no clear opportunity to
mitigate
RISK ASSESSMENT
30Carbon trading option is not viable
IMBEDDED OPTIONS
- The possibility to trade carbon emissions quotas
is extremely unlikely - Although Mexico ratified the Kyoto Protocol no
clear carbon bond valuation has been established - Although alternatives to the Kyoto Protocol are
being discussed in various sectors of the world
community, they face the same challenges as Kyoto
Protocol. - Given Vehizeros size, value of the carbon bond
would be minimal - CREATION OF THE CARBON BONDS TRADING MARKET IN
THE IMMEDIATE FUTURE IS UNLIKELY - Source in the Chicago Carbon Emissions Exchange
The creation of the carbon emission market seems
will not be viable for the next few years
31Latin America expansion option is difficult
IMBEDDED OPTIONS
- Other Latin American Cities are much less
polluted than Mexico City - Of all Latin American Cities, only Mexico City
made it top 10 most polluted world cities - Mexico City pollution level is 2 times higher
than any other Latin American City - Some Latin American Countries already have local
competition - Solectria already operates in Chile
- Brazil has its own electric vehicle manufacturer
that specializes in buses - Public transportation systems in Latin America
are at different stages of development - Different per capita incomes as well as different
gasoline vehicle prices will influence the
possibility of expanding into other Latin
American Cities
The possibility of success of Latin American
expansion option seems less likely than
possibility of success in the Mexico City, as
some cities in Latin America have already
established players.
32Mexico City remains among the worlds dirtiest
cities
IMBEDDED OPTIONS
Source World Bank, World Development Indicators,
1998 Air pollution
Mexico City has a highest air pollution level
among Latin American Cities. As a result, the
government effort to clean the environment is one
of the strongest in Latin America
33Outline of the Material
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Our valuation of Vehizero sets a range between
3.3 million and 10.2 million, while the
projects IRR is estimated to be 14 - Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Identified 5 groups of potential investor
- Developed a rating system to evaluate the capital
opportunities - Evaluated the probability of securing funds from
each group - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and
internationally, first targeting international
development agencies and socially-oriented VC
firms, then approach wealthy individuals as
project reaches the next development stage
?
34Identified 5 groups of potential investors
POTENTIAL INVESTORS
- Development Agencies
- International organizations such as World Bank,
International Finance Corporation, USAID, and
others - Social Venture Capital
- Private Capital pursuing dual objectives of
financial return and social benefit - Publicly traded mutual funds that invest in
socially responsible enterprises - Wealth Individuals
- Wealthy Individuals that donate money to various
social causes - Bank debt
- Traditional bank loans
- Traditional Venture Capital
- Private capital seeking financial returns
35Developed Rating System to Evaluate Capital
Opportunities
POTENTIAL INVESTORS
Attractiveness to Vehizero
Ability to secure funds
CRITERIA RATED AS LOW, FAIR, GOOD OR HIGH
- Does the current Vehizero management retain
control over strategic decisions? - Is there financial flexibility regarding the
timing of the payout to investors? - Will investor stick with Vehizero in the long-term
- Does Vehizero offer attractive returns to this
particular type of investor? - Are the risks inherent to Vehizero project
acceptable to investor? - Is there strategic fit between Vehizero project
and investors objectives?
36Developed Matrix to Compare Sources of Financing
POTENTIAL INVESTORS
Ability to secure Funds
Excellent Sources
High
- Attractive return
- Low risk
- Strategic fit
Attractiveness to Vehizero
Good
Ability to obtain funds
Fair
- Strategic Control
- Financial Flexibility
- Risk of abandonment
Unattractive Sources
Low
High
Low
Fair
Good
Attractiveness To Vehizero
The matrix evaluates the attractiveness of the
different sources of financing from the
prospective of the potential investor and
Vehizero using the criteria above
37Development Agencies are a likely group to
provide capital to Vehizero
POTENTIAL INVESTORS
- Accept lower returns. Development Agencies accept
lower returns than strictly financial lenders - Tolerate higher financial risk but very cautious
towards social risks. Although Development
Agencies may tolerate high financial risks, they
are quite cautious of the risk of negative
publicity, such as misused funds, negative social
or environmental impact. To secure funds,
Vehizero must demonstrate the positive
environmental effect of the project - Strategic fit. Development Agencies have very
good strategic fit with Vehizero, as both
entities are trying to improve the environment - Strategic control. Although Development Agencies
strictly monitor the use of their funds, they
usually do not interfere into daily operations of
the enterprise - Financial Flexibility. Most financing from
Development Agencies comes in the form of debt,
which limits the financial flexibility for
Vehizero - Risk of abandonment. Development Agencies are
usually more tolerant towards downside in
operational performance and rarely abandon their
projects
38Development Agencies are a very likely group to
provide capital to Vehizero
POTENTIAL INVESTORS
- WORLD BANK International Finance
Corporation - Mexico accounts for the second largest in the
Bank's disbursed and outstanding portfolio,
totaling US 11.1 billion or 9.4 percent of the
Bank's total portfolio - Banks Strategy in Mexico involves expansion of
the Air Quality Program to a second phase in
Mexico City - Currently, the World Bank studies the granting of
a US 11.8 million loan for
the Santiago (Chile) plan, whose main objective
is to reduce the emissions of polluting gases in
the city. Some money will go the the local
producer of the electric buses. - Our initial contact with the Banks private
investment arm International Finance
Corporation indicated the possibility of funding
39A related business in Mexico City has already
secured funding from IFC
POTENTIAL INVESTORS
- INTERNATIONAL FINANCE CORPORATION
- In year 2001, IFC approved 10 million
investment to Combustibles Ecologicos Mexicanos
(Ecomex), the only supplier of the compressed
natural gas for vehicles in Mexico City. - The investment is split between 1.5 million
quasi-equity and 8.5 million debt - Ecomex has proved to IFC the strong positive
environmental effect of the venture.
40Vehizero may qualify for funding from IFC
POTENTIAL INVESTORS
- INTERNATIONAL FINANCE CORPORATION
- IFC funds different type of projects based on
their expected financial performance and the
economic sector in which they are developed. - IFC invests in either equity or debt.
- The minimum amount of investment is US10M, which
cant exceed 25 of the equity of the company.
Also, the investment cant exceed 50 of the
project value. - However, exceptions can be made on a case-by-case
basis.
Source Country Officer IFC Mexico
41We recommend Vehizero to contact the IFC
representative in Mexico
POTENTIAL INVESTORS
- INTERNATIONAL FINANCE CORPORATION
- Mr. Manuel Núñez,
- Resident Manager
- Email Mnunez_at_ifc.org
-
-
- Prado Sur 240, Suite 402
- Lomas de Chapultepec
- Delegación Miguel Hidalgo
- Mexico D.F. 11000, Mexico
- Phone (52-5) 520-6191
- Fax (52-5) 520-5659
-
Ing. Gabriel España Carbajal Investment
Officer/Country Officer gespana_at_ifc.org
42Other Development and Government Agencies
POTENTIAL INVESTORS
- Development Agencies
- USAID
- Provides Grants and Other Financial Aid to
Promote the Environment - U.S. Agency for International Development
Information Center - Ronald Reagan Building
- Washington, D.C. 20523-1000
- Telephone 202-712-4810
- FAX 202-216-3524
- US Environmental Protection Agency (EPA)
- Works with Private Sector to promote the use of
energy-efficient equipment - U.S. Environmental Protection Agency
- Office of the Comptroller
- Environmental Finance Program (Mail Code) 2731R
- Ariel Rios Building 1200 Pennsylvania Ave., NW
- Washington, D.C 20460
- Government Agencies
- México Citys Department of the Environment
43Development Agency, and IFC specifically, are
attractive option for Vehizero
POTENTIAL INVESTORS
Good strategic fit indicates the opportunity for
Vehizero to attract funds from Development
Agencies. However, the small size of the project
might be an issue to overcome
44Securing Bank debt is highly unlikely
POTENTIAL INVESTORS
- Project returns are acceptable. Vehizeros
projected return of 14 will probably be
sufficient to guarantee the repayment of the
banks loan. - However, the risk is totally unacceptable. There
are 2 issues that make risk of Vehizero project
to high for the traditional lending institution - Collateral. Lack of tangible, marketable assets
that could be pledged as a collateral increases
the risk of negative returns. - Credit History. Vehizero has not built up a
credit history, as a result is considered a
highly risky investment - Poor Strategic fit. Commercial Banks rarely
invest in the start-up entities, such as
Vehizero. - Strategic control. Banks rarely interfere in a
day-to-day operations of the borrower. - Financial Flexibility. Strict interest payment,
principle repayment schedule, and debt covenants
make the bank debt the least flexible category of
capital. - Risk of abandonment. High risk of abandonment as
bank can pull out the capital at the first minor
violation.
45Securing bank loan seems unlikely
POTENTIAL INVESTORS
Lack of collateral and credit history, as well as
early stage of the development of Vehizero makes
obtaining bank loan unlikely
46Traditional Venture Capital Firms are not a good
option to pursue
POTENTIAL INVESTORS
- Vehizero returns are inadequate. Even in the
United States VC do not invest in projects that
offer less than 25 returns - Tolerate risk. VC accept the fact that 7-8 of the
ventures will eventually fail. - Strategic fit. Good strategic fit due to the
interesting product concept, however, traditional
VC do not value the social/environmental impact.
In addition, this group will be most concerned
with Vehizero exit strategy, which at this point
is not clear. - Strategic control. Depends on the style, could be
very hands-on - Financial Flexibility. Relatively flexible
- Risk of abandonment. Venture Capital firms will
sell the investment at first available
opportunity
47Venture Capital in Mexico
POTENTIAL INVESTORS
- Total investment by international private equity
funds in Mexico is 250 million - Private equity investors in Latin America will
increase Mexico weight from 27 to 37 of the
total Latin America portfolio - The hurdle rate on the Venture Capital investment
is 30-40 - Investments are made in variety of different
sectors
Mexican Private Equity Investment by Sector
Source Venture Capital Journal March 1, 2001
48The supply of foreign venture capital is almost
exclusively foreign
- As the local institutional investor base is
still underdeveloped, the supply of venture
capital is almost exclusively foreign
Venture Capital Firms in Mexico of total VC market
Hicks, Muse, Tate Furst 18
J.P. Morgan Capital 14
CVC Latin America 10
Blackstone Group 10
Newbridge Latin America 7
Advent International 6
Barings Venture Capital lt6
Others 30
Total 100
Source Venture Capital Journal March 1, 2001
The Economist Intelligence Unit, Country Finance
Report, April 2001
In most cases, Vehizero size will too small for
large international players
49Securing capital from traditional VC firms seems
unlikely
POTENTIAL INVESTORS
Lack of strategic industry fit, small size, and
low return make Vehizero extremely unattractive
to traditional Venture Capital Firms
50Social Investment Funds offer the opportunity of
raising some capital
POTENTIAL INVESTORS
- Accept lower returns. Social Investment Funds
accept lower returns than strictly financial
lenders - Tolerate higher financial risk but very cautious
towards social risks. Just like Development
Agencies, Social Investment Funds may tolerate
high financial risks, they are quite cautious of
the risk of negative publicity, such as misused
funds, negative social or environmental impact.
To secure funds, Vehizero must demonstrate the
positive environmental effect of the project - Strategic fit. Social Investment Fund have very
good strategic fit with Vehizero, although they
prefer to fund expansion phase, not seed/start-up
phase. - Strategic control. Usually exercise laissez-faire
approach to investment - Financial Flexibility. Very flexible
- Risk of abandonment. Rarely abandon their
projects, however, the financial viability of the
funds themselves is sometimes a question.
51Social Funds Universe
POTENTIAL INVESTORS
- Socially oriented VC firms
- Calvert Social Venture Partners
- Publicly traded mutual funds that invest in
socially-oriented enterprises - UBS Warburg (Lux) Equity Fund Eco Performance
- The Calvert Social Investment Fund
- Green Century
- Pax World
- Funds in Latin America
- NAEF (Ventana)
- Corporación Financiera Ambiental, S.A.-CFA
- ECo.
- EcoEnterprises Fund
52Publicly traded mutual funds
POTENTIAL INVESTORS
- UBS Warburg (Lux) Equity Fund Eco Performance
- Eco Performance is an environmental fund which
fulfils the requirements of a broadly diversified
global investment fund. It also represents an
alternative to global investment funds, bringing
an additional ecological benefit. - http//www.ubs.com/e/investmentfunds/ecoperformanc
e.html - Tel 41-1-235 36 36
- Fax 41-1-234 93 20
- The Calvert Social Investment Fund
- Calvert has been in the mutual fund business for
25 years and manages approximately 7.8 billion
in assets in 27 screened and non-screened
portfolios for over 220,000 shareholders. - http//www.calvertgroup.com/sri_654.html
- David Mallery or Stephen Moody
- Venture Principals
- E-mail ventures_at_calvert.com
- Telephone 301/961-4786
53Calvert Social Investing
POTENTIAL INVESTORS
- Portfolio at a Glance (9/30/01)
- Active Investments 30 unique, direct
investments, one of which is common to both
funds 25 unique, intermediated investments in
other private equity funds and financial
institutions, two of which are common to both
funds - Areas of Investment environment, education,
health, energy, minority enterprise,
community/economic development - Investment Size 100,000 - 750,000 (direct
investments), 100,000 - 1,000,000 (other funds)
- Types of Investment equity, convertible debt,
limited partnership interests - Preferred Investment Role prefer participation
with other institutions generally not a lead
investor - Stage of Investment early-to-expansion stage
generally not a seed or start-up investor
54Publicly traded mutual funds
POTENTIAL INVESTORS
- Green Century
- The Green Century Equity Fund's objective is to
achieve long-term total return which matches the
performance of an index composed of the stocks of
400 companies selected based on social and
environmental criteria. - http//www.greencentury.com/GCEF.htm
- 29 Temple Place
- Boston, Massachusetts 02111
- 1-800-93-GREEN
- info_at_greencentury.com
- Pax World
- Another socially responsible fund
- http//www.paxfund.com/index.htm
- Pax World Funds
- 222 State Street
- Portsmouth, NH 03801
- 1-800-767-1729
55Latin American Funds
POTENTIAL INVESTORS
- ECo
- ECo was established in 1994 as an independent
non-profit organization with the strategy of
providing enterprise development services and
modest amounts of money (50,000 or less to
250,000)in the form of loans and equity
investmentsto
economically, socially and
environmentally sustainable energy
enterprises in
developing countries. - http//www.energyhouse.com/
- http//www.iadb.org/mif/investment_page/english/ea
ndco.html - 383 Franklin Street
- Bloomfield, New Jersey
- 07003 USA
- Ph (973) 680 9100
- Fax (973) 680 8066
- E-mail eco_at_energyhouse.com
56Latin American Funds
POTENTIAL INVESTORS
- The EcoEnterprises Fund
- The 10 million EcoEnterprises Fund offers
venture capital to environmentally and socially
responsible businesses in Latin America and the
Caribbean. The Fund invests in ventures at all
stages of development with sales revenues up to
3 million. Investment size ranges from 50,000
to 800,000, with an average investment of
225,000. The Fund will finance up to 50 percent
of project costs, using a variety of equity or
debt instruments. The Fund is able to provide
flexible financing to promote long-term success. - http//www.iadb.org/mif/investment_page/english/ea
ndco.html - The Nature Conservancy 4245
- North Fairfax Drive, Arlington, VA 22203
- Tel 703-841-8176
- Fax 703-841-4880 Fax 506-220-2551
- Email ecoenterprisesfund.com
57Latin American Funds
POTENTIAL INVESTORS
- Corporación Financiera Ambiental, S.A.-CFA
- Corporación Financiera Ambiental provides
long-term investment capital for businesses with
solid growth potential. These enterprises involve
the sustainable or environmentally friendly use
of natural resources. CFA is managed by Empresas
Ambientales de CentroAmerica and its parent
company, Environmental Enterprises Assistance
Fund. Company invests in the Energy Efficiency
Sector - http//www.eeaf.org
- http//www.iadb.org/mif/investment_page/english/cf
a-engl.html - Environmental Enterprises Assistance Fund
- 1901 North Moore Street, Suite 1004
- Arlington, VA 22209, EE.UU.
- Tel (703) 522-5928
- Fax (703) 522-6450
- Web http//www.eeaf.org
- E-mail jdd_at_eeaf.org
58Another Social Fund to contact may be the NAEF
POTENTIAL INVESTORS
- NAEF North America Environmental Fund
- NAEF is a US36M private fund that promotes the
environmentally friendly industries in US, Canada
and Mexico. - NAEF was created by Nacional Financiera Mexican
bank, OECF Japanese entity, and Ventana private
firm. - NAEF mainly invests in projects that reduce air
pollution, recycling, energy production.
Source Multilateral Investment Fund /
www.iadb.org/mif/
59We suggest Vehizero to contact the NAEF (VENTANA)
representative
POTENTIAL INVESTORS
- NAEF North America Environmental Fund
- Carlos de Rivas Oest
- Phone (5) 258-0175
- Fax (5) 258-0186
- E-mail cderivas_at_ventanaglobal.com
60Securing capital from Social Funds firms is a
good opportunity
POTENTIAL INVESTORS
Great strategic fit, financial and strategic
flexibility point toward Social Funds as a viable
option to obtain funds
61Obtaining capital from wealthy individuals might
be possible
POTENTIAL INVESTORS
- Project returns might be almost irrelevant.
Wealthy individuals might view the project as
financial aid not as a profit-seeking enterprise - Social risks are important. Wealthy individuals
are the most cautious category when it comes to
the risks of bad publicity - Strategic fit. Depends on the individual and his
charitable goals. The small size and far-away
location might be a concern. This category could
be hit or miss. - Strategic control. These individuals will not
engage into the operations of such a small
enterprise. - Financial Flexibility. Capital is likely to be
viewed as a donation, however, this donation is
unlikely to be sufficient. - Risk of abandonment. Individuals are likely to
give one-off donation, and are unlikely to engage
in several rounds of financing.
62Wealthy Individuals are known to donate money to
environmental causes
POTENTIAL INVESTORS
- CURRENT DONORS
- Ted Turner
- Granted 1 billion to United Nations for various
social and environmental causes - Potential Donors
- David Rockefeller
- Carlos Slim
- George Soros
63Securing capital from might be a distant third
option for Vehizero
POTENTIAL INVESTORS
Low demands for financial return and
laissez-faire attitude make wealthy individuals
marginally attractive
64Any investor is likely to inquire Vehizero about
the following
- Exit strategy
- With IPO not being a viable selling to strategic
investor (I.e. large automaker) remains the only
option - Selling expertise
- Vehizero currently lacks selling expertise, as
its human talent is concentrated in the
engineering aspect. As the company moves forward
from being RD stage to commercial enterprise
stage, how does Vehizero plan to overcome this
lack of expertise? - Servicing expertise
- Vehizero currently does not highlight the area of
servicing and repairing its vehicles. Future
investors would need to be convinced that this is
not a risk area - Environmental impact
- Battery recyclable?
- Ratio of vehicle gasoline consumption vs. power
plant gasoline consumption to produce
electricity? - Parts recyclable?
65Outline of the Material
- The project team undertook several material
research activities to understand the
attractiveness of Vehizero for potential
investors - Overall Hybrid Vehicle Market does not look
attractive, however the small delivery truck
segment looks promising - Our valuation of Vehizero sets a range between
3.3 million and 10.2 million, while projects
IRR estimated to be 14 - Based on the characteristics of the project,
Vehizero is more likely to attract
socially-oriented investors than strictly
financial investors - Thus, we recommend that Vehizero launch an
exploratory effort in the U.S. and other
countries internationally, first targeting
international development agencies and
socially-oriented VC firms, then approach wealthy
individuals as project reaches the next
development stage
?
66Summary of the investor evaluation
RECOMMENDATION
Social Funds and Development Agencies are the
most likely sources of financing
67Results of the investor analysis
RECOMMENDATION
Ability to secure Funds
Excellent Sources
High
- Attractive return
- Low risk
- Strategic fit
Social Funds
Attractiveness to Vehizero
Development Agencies
Good
Ability to obtain funds
Fair
- Strategic Control
- Financial Flexibility
- Risk of abandonment
Wealthy Individuals
Unattractive Sources
Traditional VC
Low
Bank Debt
High
Low
Fair
Good
Attractiveness To Vehizero
Social Funds and Development Agencies are the
most likely sources of financing, with wealthy
individuals being a distant third option
68Final conclusions and recommendations
RECOMMENDATION
- CONCLUSIONS
- Funding requirements to sustain operations for up
to 3 years are estimated to be 5.5M. This
includes capital expenditures and accounting
losses - Vehizero valuation ranges from 3.3 million to
10.2 million with average IRR estimated to be
14. There is a great deal of volatility within
the range, and the mean valuation is around 1
million. - While entering the delivery vehicle segment is
possible, the options of entering the taxi
segment, expansion to other cities in Latin
America, and trading carbon bonds are much less
viable. - RECOMMENDATIONS
- Vehizero should launch an exploratory effort in
the U.S. and other countries internationally,
first targeting international development
agencies and socially-oriented VC firms, then
approach wealthy individuals as project reaches
the next development stage