Role-playing as an Investor

What if you have $500K?

2018.05

Role-playing as an Investor: What if you have $500K?
Role-playing as an Investor
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Disclaimer: This Ringle Packet was produced at the request of students who wanted to learn about business and investment decision making in English. Therefore, there may be some differences from other Ringle Packets.





You are on the board of directors at Ringle Ventures. Ringle Ventures is planning to invest about $500,000 to a startup comprised of Korean founders who seek to enter the food and beverage market in San Francisco. Consequently, you have shared this news in many interviews with various media and meetings with acquaintances, investing much of your time into finding the right investment.



Then eight teams came to Ringle Ventures with their business proposals. A few teams even brought in prototypes of their proposed products. The business items presented by the eight teams are as follows:

  • Restaurant business: a snack bar that serves kimbap and instant ramyeon for $3.50; a specialty shop for shaved ice and soft-serve ice cream; a pub that offers pizza & beer and fried chicken & beer combos; an organic cold-pressed juice production and delivery service; meal replacement powders
  • Food delivery business: a food delivery app that employs motorcyclists
  • Food information business: an app with video recipes of Asian cuisine; a photo-driven (Instagram-like) restaurant app to replace Yelp

The executives and staff of Ringle Ventures gathered to review these eight proposals and decided to invite back three teams to hear three-minute presentations from each of them before making their final decision.

  • Assessment criteria for the first round of evaluation: Is this a business that can be started with $500,000 of capital? Is this an item that can quickly take root in SF within 6 months of starting the business? Is this an item that has the potential to grow 20-30 times within 2-3 years of the initial settling down period? Does the founding team have the capacity and tenacity to withstand the rough first few years of starting a business?
  • First-round results: Five teams were not invited back (for reasons stated in the Appendix)


As the lead evaluator of this investment, you must choose a team after hearing three teams’ presentations. The presentation summaries are as follows:




#1. A snack bar that serves kimbap and instant ramyeon for $3.50

“San Francisco has the highest cost of living in all of the U.S. It has reached a state where you must pay a monthly rent of $2,500 in order to live in a studio apartment in downtown SF. Consequently, young professionals in SF have a strong need for budget-friendly meals. But there are not too many eateries providing cheap meals around SF, with most meals costing over $10. Even a Big Mac from McDonald’s, a famously inexpensive franchise, costs about $8, while Chipotle tacos exceed $10. A Sushirrito costs $12.



With this in mind, our team plans to rent out a ground-floor store with 33 square meters of floor space in the Embarcadero building area and open up a snack bar that serves instant ramyeon and kimbap for $3.50.



Kimbap can be marketed as “soul food” featuring both vegetables and meat, in addition to being easily comparable to Japanese maki, a food that Americans like. Kimbap also has the benefit of being takeout-friendly. Ramyeon is also familiar to Americans thanks to Japanese ramen, so we can expect positive responses by cooking instant ramyeon packets produced in Korea and selling them for $3.50.



We want to start our first store near the Embarcadero building because this building has a high concentration of accounting firms, consulting firms, and large corporate offices where employers do not provide free lunch as tech companies like Google do. This means that there are numerous employees who must buy their own lunch. Moreover, the large amount of foot traffic near the building will make it easy to attract customers who are on-the-go and want a light, cheap meal.



If we sell our kimbap and ramyeon menu for $3.50 and sell approximately 1,000 units a day, we can secure a monthly profit of $60,000, excluding the cost of materials. This is an amount that can offset the cost of rent and labor. In addition, we predict that our store will not require additional marketing expenses because we can draw a lot of attention with a sign that reads “$3.50 Maki and Ramen Specialty Shop.” After successfully establishing our first branch within six months, we plan to expand around SF and Silicon Valley. Later, by attracting additional investments, we hope to make our name as an Asian soul food startup that sells $3.50 foods.”




#2. A specialty shop for shaved ice and soft-serve ice cream

“Our team plans to open a specialty shop that sells shaved ice with fruit and soft-serve ice cream like Baekmidang. We selected our items based on marketability and rapid-growth potential from word-of-mouth marketing.



Although the biggest market in the SF food and beverage business is the large retail sector, supermarkets are difficult to start with only $500,000 of capital. Though restaurants, franchise eateries, and other food-selling businesses comprise the next largest sector, the market is already saturated in SF, making the competition especially stiff. Above all else, there are very few cases of a new food startup actually achieving big success. The dessert market, however, is simultaneously enjoying the quickest growth in SF and seeing many new types of stores crop up. Asian beverage shops, particularly boba (bubble tea), are quickly growing, while the ice cream market is dominated by new startups like Smitten, rather than existing franchises like Baskin Robbins. Accordingly, we’ve evaluated that the dessert market is an area where Asian startups can aggressively expand.



The reason why we chose soft-serve ice cream and shaved ice with milk ice and fruit as our items is because the menu will work in the U.S., while being an item that can expand quickly through Instagram’s word-of-mouth influence. SF stores with a unique food production process have been quickly promoted and trended on Instagram; therefore, the fun process of making shaved ice with fruit can likewise attract an Instagram audience. Additionally, though Korean-style shaved ice made with organic milk is not a familiar item in the U.S., we are certain that it is a flavor profile that will prove popular among Americans. Consequently, we can easily earn a high review on Yelp. We also have a team member who knows how to produce ice cream that tastes very similar to Baekmidang’s.



Our team doesn’t think that we need to make profit from the jump. For example, famous American coffee and ice cream startups like Blue Bottle and Smitten did not generate revenue at the beginning stage of their businesses. Their multi-million-dollar values were recognized after they managed to successfully operate 5-6 locations that are always packed with customers; they were able to rapidly grow after securing a large sum of investments. We are confident that we can make our shaved ice and ice cream startup with 3-4 initial branches into a foodie hotspot that inspires people to line up.




#3. An app that produces video recipes of Asian cuisine and delivers ingredients

We think that there is an issue of scalability in the food production business. Rather than targeting 10,000 customers, we aspire to become a food-tech startup that provides services to over 10-100 million customers. Accordingly, we plan to launch an app featuring video recipes of Asian dishes and later expand into a service that delivers ingredients for our recipes.



Everyone on our team studied abroad in college. During our college years, we often saw that many of our American friends wanted to cook Asian food themselves, but didn’t know the recipes to do so and ended up having to eat out at more expensive restaurants. Even if they happened to know how to prepare these dishes, they also struggled to find the vegetables and sauces that go into Asian dishes.



We want to create an app that can perfectly solve these problems, so our app will allow users to watch these video recipes and easily purchase the relevant ingredients to be delivered to their doorstep.



Producing video recipes is not a difficult task. For the video app success, we will make our mobile app available to the public after producing 600 recipes of the most popular Asian (including Korean, Chinese, Japanese, Vietnamese, and Thai) dishes among Americans. Our goal is to film videos of 10 dishes in a day and finish 600 videos within the span of two months. Afterwards, we will encourage sign-up through Instagram and Facebook ads. We will especially target the UC Berkeley and USC area, as our team members have graduated from those schools, and hope to inspire word-of-mouth promotions.



However, we do think that we do need some level of preparation in order to provide a service that delivers ingredients for our recipes. Accordingly, we plan to start our delivery service centered around SF after having hit 100,000 app downloads for our video recipes.




You must choose a team out of the three to invest $500,000 in. After familiarizing yourself with the SF food and beverage business by watching the videos below, answer these core questions and come to a final decision.




[Appendix]

Evaluation notes on teams that were not chosen for an additional meeting after the first round of proposals:

  • A pub specializing in fried chicken & beer and pizza & beer combos: Most sports pubs in SF already offer Mexican wings and pizza with beer. Given the general lifestyle where people go home after 7 p.m., we evaluated that a specialty pub relying on late-night purchases is unlikely to succeed.
  • Food delivery app that uses motorcyclists: There are already 3-4 food delivery apps including Uber Eats competing in SF. Quick delivery using motorcycles may differentiate this service from others, but considering the initial motorcycle purchases and the high cost of labor in SF, we decided that this would be a difficult business to launch with $500,000 of capital.
  • Organic cold-pressed juice production and delivery business: Many farms around SF are providing organic cold-pressed juice to the SF area, while some farms also have contracts with companies to provide juices to their office employees. Because the proposing team’s item and delivery method is not clearly different from existing business in SF, we judged that the likelihood of their success is slim.
  • A photo-based restaurant-finding app to replace Yelp and similar to Instagram: Americans find text-based information more helpful than photos for finding eateries. Even for photos, there is a larger demand for “objective” photos that are not edited to look more appetizing. Accordingly, we judged that the developing team’s idea does not meet the product-market fit in SF, in addition to the extremely slim possibility of a new app replacing Yelp.
  • Meal replacement powder: We judged that the health food market in SF is already saturated. And because employees in SF lead relatively leisurely lifestyles, they show more interest in consuming natural health foods than convenient substitutes. Considering how salads including health ingredients such as avocado, beets, and quinoa are the most popular products, we decided that healthy food in the form of meal replacement powders are not the right fit for SF.
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