Honest Tea Case Analysis

Honest Tea : Case Study

The Company ‘Honest Tea’ is currently at a survival  stage. The  company  needs  to  break  even and is looking for sustained investment to carry it to profitability and aid its expansion plans.

The company can achieve this through diversified sources of investment: 

It can accept the  5 million dollar funding from a Venture capital firm which would boost its its sales and help in rapid expansion nation wide.  The disadvantage  would be that  Goldman has to sacrifice some  control over the  company and also agree to a lower pre-money valuation.Where as if he raises the 2 million dollar funding needed from Investor’s circle, he would still maintain control of the company and continue towards expansion just slower. This would be in line with Honest tea’s statements for social and environmental responsibility. 

The drawback to this and raising money from individuals investors being the time and effort he will need to put into it.  

Honest Tea should raise the investment from Investor’s circle. By doing so, the company

can fetch a higher pre-money evaluation. Furthermore  the projected  need for financing  is 2 million  dollars  and Honest Tea would  do well to avoid excess investments and loss of control at the growth stage.

The disadvantage of managing  a group of investors can  be solved  by hiring an  agent in charge  of investor  relationship. This would allow Goldman to concentrate  on the company’s operations.Though this may increase agency costs, Goldman’s time is precious and would help him  to concentrate  on strategic decisions. 

Goldman can also solve the problem of absence of a strategic team by hiring outsiders. He can also setup a Board of representatives for the company. The representatives can be outsiders  qualified to assist Honest tea in its future operations. 

This would allow him to actively chart the path of the  company and retain control. 

Raise funding from Investor’s circle and tap existing investors for the remaining amount. 

Goldman can also prevent the dilution of the company by issuing warrants and retaining the  right to buy the warrants at a later period if needed.

During the summer of 1983, Bob Reiss observed with interest the success in the Canadian market of a new board game called “Trivial Pursuit.” His years of experience selling games in the U.S. had taught him a rough rule of thumb: the sales of a game in the U.S. tended to be