BzzAgent, Inc. 2005 Case Solution & Answer

BzzAgent, Inc. 2005  Case Solution


Dave Balter was the CEO and founder of Boston based BzzAgent Inc., in the age of 33 he founded a word of mouth (WOM) marketing firm. Before starting the firm the Balter strongly focused on the term sheet which was prepared by the chairman of company Shikkar Ghosh. The main goal of the company was to raise money it hoped about $10 million. Now the Balter and Ghosh were set the price, terms and conditions and going to invite 9 to 10 Vice chancellors compete for right investment. Dave Balter shares the background of public relations and advertising. Before BzzAgent Company, Balter used to run two promotional agencies. Balter noticed that the traditional media was losing effectiveness. By finding the gap of marketing Balter think about word of mouth marketing. This is the simple recommendations which pass from person to person by sharing different sort of feeling and emotions regarding any product or service. Balter believe that the people are more attractive messengers then the televisions, panels and radio. Balter created the BzzAgent in early 2002. Balter start the company with low capital for initial months funding with $30000 with his own money.

Problem Statement

The main problem was that the people was losing their interest in media marketing through different medians  and the other problem was few of the investors did not interested in the invitation for investment.

Mr Balter came with a brilliant idea of Word Of Mouth Marketing. Through this mood of marketing the products demand increases. The idea of Balter became successful and within a very short time company became more profitable. In 2005 the chairman of BzzAgent and Balter decided to raise a series B investment for getting more funding with better terms.  Mr Cavanaugh sent out the term sheet and investment invitation to many investors from which 10 VCs accept the invitation.

Situational Analysis

Overall Assessment of BzzAgent

The company started its operations in 2002 when the Mr Balter CEO of the company proposed an idea to twitch a publicizing activity using the word of mouth marketing strategy. Initially the firm operates from a small scale by launch the website. The Balter offer his colleagues to join his company and work with him. Balter apply the same word of mouth strategy for his company to join friends of friends. From my Assessment to overall BzzAgent case study I find the word of mouth strategy works really a lot because through the marketing pattern the company of Balter got funds from many sources to spread its operations. The strategy of WOM works great and company grow rapidly and in the current situation company is more profitable.

Value of Company

The most important valuing methods for the company are:

  • Market capitalization: in this method we are supposed to multiply the total number of shares with current price of share.
  • Net Present Value: NPV is simply the difference between the present value inflows and present value of outflows.
  • Enterprise value: this a very simple method used for valuing company in which we simply add the debt with owners’ equity and then deduct cash from it.
  • Discounted cash flow: DCF is used for estimate the value of investment on its estimated future cash flows.

These are some key variables which are used for valuing the company. These variables calculated on the basis of data provided in balance sheet and income statement. In our case the DCF method is to be used. That’s why the analyst used the DCF method to calculate future cash flows.

For finding the future cash flows the analyst use the discounted rate of 10% and growth rate 2%

2005 = 4.6 million FCF

2006=10.4 million FCF

After FCF calculation Analyst calculate DCF by using same discounted rate. Findings revealed that company would have 4.2M and 8.6M DCF Respectively. This shows high rate of growth and profit for company in future. After that the analyst calculated the terminal value which was 120 million of cash flows over its expected life.

In the last the investigator calculated the NPV and the results comes as 102 Million this indicate that the company is able to earn almost 102 Million of DCF over its foreseeable life………………………..

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