Dried Persimmon: Hanging Dreams and Aspirations of Farmers in Van Lang District, Lang Son Province”
Development Stage: Pre-Seed.
Key Points to Showcase to Investors:
- MVP (Minimum Viable Product): Positive customer reviews of the existing product.
- Founder’s Background: Passion, concerns, and experience in the agricultural sector.
- Exit Experience: Successful exit experiences are a plus.
- Market Size: Attractive market potential.
Highlights:
- Products: Dried persimmon, persimmon tea.
- Founder: Mrs. Thuong – a minority ethnic Nung.
- Cultivation Area: 2000 hectares, including 30 hectares of organic cultivation certified by VietGAP, with an annual output of 10,000 tons of fresh persimmons and 1000 tons of dried persimmons.
- 2022: Bank loan for dried persimmon production.
- Sales Channels: 40% online, 60% offline, primarily wholesale.
- Preservatives: No preservatives, natural shelf life of 1-2 months. Processed products can last 6-8 months.
- Fresh Persimmon Purchase: 80% of fresh persimmons are purchased from local farmers.
Production Process Highlights:
- Drying Method: Heat drying.
- Environment: Humidity control, ventilation.
- Drying Time: 10-12 days to remove tannins.
- Quality Standards: Dried persimmons must have stems and leaves.
- By-products: The remaining persimmons are processed into soft dried persimmons and fresh persimmons.
- Tea: The stems and peels are used as the main ingredient for healthy persimmon tea.
Production Technology:
- Dried persimmon processing.
- Fermented persimmon tea processing.
- Cold distillation technology.
- Persimmon vinegar production process.
Product Comparison:
- Lang Son Persimmon: Naturally sweet.
- Da Lat Persimmon: Slightly sweet.
Financial Statements and Business Performance from the Founder’s Perspective:
- Assets:
- Machinery and Equipment: VND4bn
- Land (1600 sq.m): VND6bn
- Total Asset Value: VND10bn
- Intellectual Property (4 technologies): Valued at VND8bn
- Capital:
- Registered Capital: VND5bn, actually contributed VND6bn.
- Loans: VND2bn (secured by land title), an additional VND2bn is owed to local farmers and not yet due.
- Revenue and Profit:
- 2023 Revenue: VND6bn, Net Profit: VND2.1bn (~35% profit margin). EBITDA is unadjusted (does not include operational costs at a larger scale).
Future Revenue Forecast:
- 2024: VND10bn
- 2025: VND18bn
- 2026: VND40bn
Shareholders:
- Cooperative with 7 members (Founder owns 20% shares)
Capital Usage Plan:
- Machinery and Equipment
- R&D for new products
- Expansion of production scale
Cost Structure:
- Overhead Costs: 5%
- Marketing: 15%
- COGS: Not specified
Negotiation Information and Perspectives:
- Ambitious Target: The founder is confident of achieving VND40bn in revenue with an investment of VND5bn.
- Core Competencies: The business’s strengths lie in processing and preservation technology.
- Corporate Transformation: The founder’s family will hold 40% of the shares in the new corporation, with the remaining 10% distributed among other stakeholders.
- Shark Bình and Shark Minh’s Proposal: They offer a VND2bn investment for a 33% stake and an additional VND3bn loan.
- Shark Thái’s Offer: They will provide support in preservation technology.
- Advisor’s Suggestion: The advisor recommends converting the loan into equity and allowing the founder to buy back the shares after three years.
- Sharks’ Concern: If the sharks invest 5 billion VND directly for equity in this round, they will own more than half of the company.
- Investor’s Proposal: The investor suggests a convertible preferred share (CPS) loan.
- Valuation Cap: The maximum valuation is set at VND20bn.
- Loan Term: The loan term is 3 years.
- Contract: The contract can be signed immediately, but the sharks require a formal due diligence process.
Overall Assessment of the Deal:
- The founder may have pitched a bit early in their business journey, perhaps due to the challenges of finding co-founders in a rural area. However, the deal, while premature from an investment standpoint, provides valuable learning experiences for the founder.
- The founder’s decision to mortgage their home, commit to buying 80% of the farmers’ produce, and their overall passion for the business is commendable. These qualities are essential for a successful entrepreneur.
- The founder’s presentation was well-prepared, with clear data and a well-structured narrative.
- The financial statements were a bit confusing, especially regarding PPE. However, this is a common issue in early-stage businesses and can be resolved with more detailed financial analysis.
- The biggest challenge is the product itself. Perishability and seasonal demand make it difficult to scale. Improving the preservation and distribution processes is crucial.
- The founder’s current technology, while promising, may not be competitive enough. Investing in advanced drying and preservation technology is crucial.
- The valuation was initially 5 billion for 15% equity, meaning a pre-money valuation of around 28.3 billion. However, the sharks negotiated it down to 4.06 billion, and the founder agreed. Assuming an adjusted EBITDA of 15% after considering all costs at a revenue of 40 billion, the future valuation could be around 48-60 billion. But without support in sales, business knowledge, and distribution, it’s uncertain if the founder can achieve this. Given the sharks’ efforts and the founder’s limited financial expertise, the deal was closed at a valuation closer to the book value, similar to a co-founder joining late in the game. The founder lacked the negotiation skills to push for a better deal.
- The term sheet for the VND3bn loan involves a convertible note.
Interest Rate and Term: The interest rate is a preferential 10% per year (compared to the usual 15%). The loan is due in 3 years.
Total Repayment: At maturity, the total repayment (principal and interest) will be approximately VND3.993bn.
Three Options at Maturity:
-
- Renegotiate: The founder can negotiate a new maturity date.
- Repay: The founder can pay back the entire loan amount with interest.
- Convert: The founder can convert the loan into preferred shares at the valuation of the next funding round. Please note that even with a valuation cap of VND20bn, the conversion can only happen if there’s a subsequent investment round. In this case, the sharks will re-evaluate the value of the convertible note. If the valuation in the next round is higher than the cap, the investors will benefit.
If no new investors come in, the founder must repay the loan with the agreed-upon interest rate. This structure is quite complex for a first-time founder, especially when it comes to estimating the company’s future valuation and growth.
- Despite the challenges, the founder will gain valuable experience from this deal.
- Is 5 billion VND enough working capital to support VND40bn in annual revenue over 3 years?
To answer this, we need to know:
a) The company’s financial structure
b) The peak sales season
c) The breakdown of fixed assets, especially those that have reached full capacity and when they are expected to
d) Other metrics like inventory turnover and the challenges of financing purchases from farmers.
It’s getting too complex. The main point for the sharks is to support the farmers. Let’s delve into the details later.
Congratulations to the two sharks, the founder, and the farmers of Van Lang district, Lang Son province.
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