Robin Wolaner has recently quit her job as publisher of a magazine called Mother Jones. She has gained a significant amount of skills with the magazine industry and is now trying to create her own startup magazine, Parenting. She has already raised enough research and development capital of $162,500, and has already gotten positive feedback from direct mailing methods. With all of the positive feedback she has received form her direct mailing, she wants to get her company up and running. In order to do so, she has estimated a need of a $5 million investment.
The only people who have even come close to wanting to invest, is Time Inc. , who want to do a joint venture with Wolaner. The only issue with this joint venture is that Time Inc. wants to eventually buy out the Parenting Magazine from Wolaner sometime in the future for a cap price. Wolaner does not see this as a fair play at all but she is running out of options and money. Time Inc. are offering Wolaner $3. 2 million in first round funding in order to get her company off the ground and making its first sales.
If the company meets its benchmarks, they will then invest the additional $1. 8 million. This sounds appetizing until Wolaner realizes that each time she will receive more funding from Time, she will lose a substantial amount of stake in her company. If she goes through with the deal, she will hold fewer stakes in the company than she wants. Although, even with all of the funding being pushed her way, she will still own nearly 35% of the company near the inevitable buyout. I recommend she accept the terms of the deal being offered by Time Inc.
She does not have any other options at this point. She has failed to receive funding in the amount of $5 million from any other source, and she simply won’t find a better option to team up with her company than that of Time Inc. Time Inc. will help her magazine be a success, and when it is, she will have a substantial amount of profit from having 51% of the stake in the company. So with the money she will receive from the buyout, plus the money she will have already made with the success of her company, she will be sitting pretty and should be happy with her venture being a success.