Dodots Case Study

DoDots has multiple options to finance the company. One of the

options is to use debt financing. One of the pros to debt financing

is the timing. The timing was not right to have an initial public

offering. DoDots was too late for equity financing, the internet

stocks were not able to obtain the large equity amounts of internet

stocks from the previous year. Investors are not as interested in

IPOs of internet stocks, and that will make it difficult to raise the

true value of the company thru an equity offering. An equity offering

should be kept an option, just not at the current time, the option

should be kept open for the next couple years. History has proved

that it took until 2003 for the IPO market to heat back-up, and it

became very hot in the summer of 2004 with the Google IPO.

Another pro for the debt financing was the founders were able to

keep full ownership of the company. If they were to do a IPO, they

would lose the share of the company that they offer to the public,

diluting their ownership. It is a benefit to the founders to keep full

control of the company when it is in the start-up phase. There are

a lot of directions this company can go, and the founders will be

able to steer this company in the right direction.

One of the cons using debt financing for DoDots is the length of the loans are short. History proved that it was very difficult for internet

companies to become profitable in the short-term, so paying back loans in as short as 36 months may not be possible with out

obtaining more debt. The interest rates are very good for a start-up, DoDots will expect the annual interest rate to be around 10%.

It is also important for DoDots to keep an open line of credit with the bank, or with multiple banks, so they will have excess cash if

needed for growing the company. This proved to be a time of consolidation in the internet sector, and they will need to have cash on

hand in order to obtain companies if the right company is for sale at an extreme discount. They also need to have enough cash on