VILAINE

Group 2:
Elaine Au-Yeung Victoria Chau Huy Dang Phong Van Vy Van

Contents
About us ........................................................................................................................................................ 2 Executive Summary....................................................................................................................................... 3 Mission Statement .................................................................................................................................... 3 Company Information ............................................................................................................................... 3 Growth Highlights ..................................................................................................................................... 3 Products and Services ............................................................................................................................... 4 Financial Information ................................................................................................................................ 4 Future Plans .............................................................................................................................................. 4 SWOT Analysis............................................................................................................................................... 5 VOS Screening ............................................................................................................................................... 7 Revenue and Pricing Model: ......................................................................................................................... 9 EBITDA and SURVIVAL BE:............................................................................................................................. 9 Contingency Plan: ....................................................................................................................................... 10 Exit Strategy ................................................................................................................................................ 11

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About us
Our company is built off of the concept of Rent The Runway Inc., but instead of renting out glamorous apparels and accessories online we would be only renting out luxurious accessories for males and females such as necklaces, bracelets, ties, cufflinks, etc. Our goal is to market expensive accessories to those who cannot afford, or would not want to pay for, a pricey piece of accessory for rare uses, or those who like to mix things up. We target audience who would like to wear $20,000 necklaces with $30,000 tiaras for the expensive looks without the expensive price tag. By being in the Apparels & Accessories Industry, it would be a highly competitive field, as clothes and accessories are often in and out of style. By basing similar figures off Rent The Runway, Inc., an e-commerce company recently founded in the late 2009, after 4 years of operation, RTR has raised over $55,000,000 with the last valuation of more than $200,000,000 and current revenue of more than $21,000,000. After analyzing these figures we do believe that the there is a high market potential that we can build off of. We understand that though RTR is one of the first to enter the market with this concept, but to investors we are determine to prove ourselves to be better than RTR instead of copycats by learning from their mistakes and building off it. Regardless of all the potentials, there are still drawbacks that can result from it if not established and run correctly. If our company focuses too much on just the industry side of the business it can also lead the companys downfall since they are either ignoring or failing to pay enough attention to three very important factors: Logistics, Marketing, and Customer Service. As Vilaine (Victoria + Elaine) moves through its life cycle and towards Harvest, our company is also growing with the valuation increasing annually. We plan to keep up with the Apparel & Accessories industry, as mentioned above it is constantly changing and a missed year of new inventory can result in a drop in our customers and valuation, though it will be hard to keep up with the ever changing industry we also see the potential to enter the industry and use it to our advantage.

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Executive Summary
Mission Statement
At ViLaine, we strive to empower our subscribers with a service that provides the newest, vintage, couture, most fashionable, luxurious, and classy items at their fingertips without breaking the bank. Our subscribers are given insider access to a large pool of expensive accessories to rent for a day, a week, or a month. An event, formal, or party? Weve got them covered with our extensive list of varieties. ViLaine wants every subscriber to feel and look great! We offer our subscription service at $35/month on a monthly basis meaning customers may choose to subscribe one month and not subscribe another.

Company Information
ViLaine was formed in a nice and sunny summer day in 2013. The founders include Victoria Chau, Elaine Au-Yeung, Huy Dang, Phong Van, and Vy Van. The name ViLaine was created by taking the first and last parts of our two female founders. Each founder is responsible for specific functions in operations. Victoria Chau is our Controller and Senior Accountant, Huy Dang is our Chief Financial Officer, Elaine Au-Yeung is our Chief Executive Officer, Phong Van is our Marketing Director, and Vy Van is our Chief Operations Officer. Our headquarters is located in the City of Brotherly Love; Philadelphia, PA.

Growth Highlights
ViLaine is projected to maintain a stable growth profit margin of 66%. We also see a positive growth in revenue for the projected 10 years. We project that gross profit can reach over $9M by Year 10 with the support of the external funding in Year 4.

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Products and Services

We provide top notch high quality luxurious jewelry and other accessories for rental.

Financial Information
Our company acquired a $300,000 loan from Bank of America at 8% interest in the seed-funding stage. In addition, our founders contributed $150,000 to seed-funding as well. In our projections, we plan to pay back the $300,000 loan in Year 5.

Future Plans
We plan on expanding our company to more than just accessories. We plan to expand to renting apparel too since we project on having significant growth in the coming years. Another method we might use expand our company is to buy smaller apparel companies since they already have established customers, we can also draw in their customers too. There is also a possibility that we may start selling accessories as well if it is deemed profitable.

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SWOT Analysis
Strengths (Internal) Weaknesses (Internal) We are a group of young people with We are an e-commerce business. great passion about what we are Unfortunately, none of the founders doing. We believe in our business and have background in IT. That means, if we ran into a complex problem with our our products. We believe the market is server or website, it will cost a lot. huge and if we do it right, we will get (Unexpected Expenses) big. Thats why we will work days and Lack of capital funding. RTR is able to nights, with all of our sweats and tears grow so rapidly because they are able to to make this happen. Thanks to the nature of a rental raise $55M in about 3 years. It is not service company, we can expand easy to raised that kind of money quickly without spending too much on (especially when we are not the first to inventories. One normal item can last the market and we are not two graduates from Harvard Business School on average about 10 years. In addition, like their founders are) it also means that we can keep up with Lack of experience. None of us have any pretty good Margins. We target to have about 66% gross margin since we experience in starting up and we will need to spend a lot of time looking for start making profit. consult and advice from those who already been there done that. Opportunities (External) Threats (External) The market is huge. Women love Competition: We based our idea and beautiful jewelry and dresses. Men model on RTR. That means we are up love the convenience of a rental against quite a big fish. service. They are willing to spend a The barriers to entry is not too high. It good amount of money on fashion. In means if we succeed in this, other people will want to take a piece of the addition, since we are a rental service, we can target a majority of women pie. We will have to compete with a lot who love fashion and want to save of people. money. This is a proven market. Look at the growth for RTR from $0 to $21M in sales in just 3 years. There are people out there love this kind of service. With an internet company like us, we may say that our greatest assets are our customer base. If we can make it to year 5 or more, we will have tens of thousands of loyal customers. It will open up tons of opportunities. If selling accessories is profitable, we can sell some. We want to start an independent fashion brand, we can
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try, etc. The crash of the stock market in 2008 resulted in consumers being more thrifty with their spendings by renting more instead of buying especially for accessories that are often used only once or on rare occasions.

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VOS Screening
If we put 3 points for one high, 2 and 1 for average and low, our business idea ViLaine will get 37 or 48 potential points in the VOS potential attractiveness. Frankly, this result does not say much about our real potential and it definitely can never stop us from following this idea. However, we do believe it provides good sources of information and a chance for us to rethink about our business (Strengths and weaknesses). 1. Industry/ Market a. Market size potential: High (>$100 Million) Fashion is a billion dollar industry. The rental service industry is also huge. RTR ran from 0 to $21 Million Dollar in sale in 3 years. This is an undeniable proof that the market is huge. b. Revenue growth rate: High (>30%) Based on our prediction, our revenue will grow from 35-40% in the first 1 years of operation. c. Market share: Average (5-20%) Besides RTR, none of the start-ups in this field is doing well. We aim to become the second market leader. Grabbing 8-10% of the market. d. Entry Barriers: Low (Few) The entry barriers for this kind of business are not too high. If we succeed with Vilaine, we will expect tons of others jumping right away into the field.

2. Pricing/ Profitability a. Gross margins and after tax margins: High (>50%) and high (>20%) We plan to keep our gross margin to be around 66% during the first 10 years and the after tax margins at about 22-28% since we start to make profit. b. Asset Intensity and Return on assets: High (>3.0 turn-over and >25%) Since we are a rental service company, we will have very high asset intensity and return on assets.

3. Financial/ Harvest a. Cash Flow Breakeven: Average (2-4 years) Based on our calculation, we will breakeven in year 3.
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b. Rate of return: High (>50%) If everything went well, we will have EBT of more than $4M in year 10 and expect a buyout of $20M (You can see more in out Exit Strategy section) from that proceeds, we will take out $14,304,688, equals to an annualized return of 57.74% over the 10 year period. (This rate of return does not account our $75K Salary for each founder since year 7) c. IPO Potential: Low (>5 years) The nature of this business is that you need to burn a lot of cash in order to grow. Fortunately, once you reach the tipping point, your number will explode. Once you make profit, your profit will increase as an increasing rate. Thats why we need such a long time to a liquidation event. d. Founders control: High (majority) There is no doubt we will never surrender our control of our company, except for getting $16M in year 10. We will reconsider about that option when we get see that offer. 4. Management Team: a. Experience/ expertise: Low (Little) We are not going to lie. We are students without any real experience in either staring up a company or this industry. b. Functional Areas: Low (Few covered) The management team has background in Finance and Accounting. We understand that we have a lot to learn and are very willing to learn. c. Flexibility: Average (Able to adapt) We will try our best to adapt to make it work. We understand that in order to state quick to adapt, we need to have either experience in entrepreneurship or expertise in the industry. Thats why we believe we will be able to adapt, just not so quick. d. Entrepreneurial focus: Full team All of us will work full time to make Vilaine become a great success in year 10.

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Rental Revenue Cost of Revenue Gross Profit GP Margin Expenses: Salaries and Wages Payroll Taxes (7.65%) Inventory Losses (5%) Operating Expense
Website Design Website Maintenance Insurance Storage Fees Advertising Equipment Travel/Consulting

Year 1 119,700 41,040 78,660 66% 19,000 37,700

3,500 1,200 1,800 25,000 1,200 5,000

Year 2 185,036 63,441 121,595 66% 7,500 33,000

1,200 1,800 25,000 5,000

Year 3 283,475 97,191 186,283 66% 93,600 7,160 15,000 33,000

1,200 1,800 25,000 5,000

Year 4 680,912 233,456 447,456 66% 156,000 11,934 45,000 60,820

1,500 2,000 22,320 25,000 5,000 5,000

Year 5 1,108,625 380,100 728,525 66% 156,000 11,934 55,000 55,820

1,500 2,000 22,320 25,000 5,000

Year 6 1,890,166 648,057 1,242,109 66% 468,000 35,802 100,000 45,820

1,500 2,000 22,320 15,000 5,000

Year 7 3,096,393 1,061,620 2,034,772 66% 843,000 64,490 175,000 45,820

1,500 2,000 22,320 15,000 5,000

Year 8 5,447,901 1,867,852 3,580,049 66% 843,000 64,490 300,000 46,020

1,500 2,200 22,320 15,000 5,000

Year 9 9,112,189 3,124,179 5,988,010 66% 843,000 64,490 500,000 46,020

1,500 2,200 22,320 15,000 5,000

Year 10 14,789,007 5,070,517 9,718,491 66% 843,000 64,490 750,000 46,020

1,500 2,200 22,320 15,000 5,000

Total Expenses EBITDA Interest on Loans Depreciation EBT

56,700 21,960 24,000 38,000 -40,040

40,500 81,095 24,000 53,000 4,095

148,760 37,523 24,000 83,000 -69,477

273,754 173,702 24,000 173,000 -23,298

278,754 449,771 24,000 283,000 142,771

649,622 592,487 0 483,000 109,487

1,128,310 906,463 0 833,000 73,463

1,253,510 2,326,540 0 1,433,000 893,540

1,453,510 4,534,500 0 2,433,000 2,101,500

1,703,510 8,014,981 0 3,933,000 4,081,981

Items available New Inventory Shipping Efficiency

1,900 380,000 41,040 30%

2,518 150,000 63,441 35%

3,857 300,000 97,191 35%

8,106 900,000 233,456 40%

13,198 1,100,000 380,100 40%

22,502 2,000,000 648,057 40%

38,802 3,500,000 1,061,620 38%

68,269 6,000,000 1,867,852 38%

117,274 10,000,000 3,124,179 37%

190,335 15,000,000 5,070,517 37%

Year 1 CashFlowfromOperations NetIncome(Loss) Depreciation InterestExpense NetCashProvided(Used)byOperatingActivities CashFlowsfromInvestingActivities PaymentsforCapitalExpenditures Onetimestartupcost NetCashProvided(Used)byInvestingActivities ProceedsfromTermDebtBank RepaymentofTermDebtBank VCInvestment OwnerContribution NetCashProvided(Used)byInvestingActivities BeginningCash EndingCash 21,960 38,000 24,000 83,960

Year 2 81,095 53,000 24,000 158,095

Year 3 37,523 83,000 24,000 144,523

Year 4 173,702 173,000 24,000 370,702

Year 5 449,771 283,000 24,000 756,771

Year 6 592,487 483,000 0 1,075,487

Year 7 906,463 833,000 0 1,739,463

Year 8 2,326,540 1,433,000 0 3,759,540

Year 9 4,534,500 2,433,000 0 6,967,500

Year 10 8,014,981 3,933,000 0 11,947,981

1,200 3,500 4,700 300,000 0 0 150,000 450,000 0 538,660

0 0 0 0 0 0 0 0 538,660 158,095

0 0 0 0 0 0 0 0 158,095 144,523

5,000 0 5,000 0 0 500,000 0 500,000 144,523 875,702

0 0 0 0 (300,000) 0 0 0 875,702 756,771

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0 0 756,771 1,075,487

0 0 0 0 1,075,487 1,739,463

0 0 0 1,739,463 3,759,540

0 0 0 0 3,759,540 6,967,500

0 0 0 0 6,967,500 11,947,981

Therefore:

CashBuild=NetSalesInreaseinReceivablesxNetSales CashBurn=COGS+OperatingExpenses+lnterest+TaxExpense(currentlyignoredinourcase)+increaseininventory+changesinpayable+capex
Yl Y2 185,036 180,941 $4,095 Y3 283,475 352,952 $(69,477) Y4 680,912 704,210 $(23,298) Y5 1,108,625 965,854 $142,771 Y6 1,890,166 1,780,679 $109,487 Y7null 3,096,393 3,022,930 $73,463 Y8null 5,447,901 4,554,361 $893,540 Y9 9,112,189 7,010,688 $2,101,500 Y10null 14,789,007 10,707,026 $4,081,981

CashBuild CashBurn NetCashBuild(Burn)

119,700 159,740 $(40,040)

Revenue and Pricing Model:

We estimate it will cost on average $200 per item. The cost will start to decrease once we gain enough purchase power (once we hit $5,000,000+ worth of inventory) We will price our rental products at $35 per item. Using our estimations, we will rent out 30%35% of the items we have each month, applying the assumption that 3% of the items will no longer be used every year, and a depreciation of 10% per year, we came up with $929.124 per item. That mean for each item, it cost us $200 to buy and it will generate $929.124 in revenue, giving a Margin of 78.5%. This is before adjusting other expenses (admin, marketing, loan interest, etc.) If we take into account all these things, it will bring the margin back to 66% as in the Income Statement. We do see that 78.5% margin is high yet we believe it is reasonable for rental services. Being realistic, we believe that we can keep our margin at 78.5% and use that number for later calculations.

EBITDA and SURVIVAL BE:

Year Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 EBITDA $21,960.00 $81,095.00 $37,523.00 $173,702.00 $449,771.00 $592,487.00 $906,463.00 $2,326,540.00 $4,534,500.00 $8,014,981.00 Survival BE $209,132.42 $217,656.01 $77,412.48 $179,749.24 $203,744.29 $269,094.75 $743,866.06 $551,001.52 $215,616.89 $443,123.06 Revenue $119,700.00 $185,036.25 $283,474.80 $680,912.06 $1,108,624.70 $1,890,165.96 $3,096,392.93 $5,447,901.15 $9,112,188.74 $14,789,007.29 Cumulative EBT -$40,040.00 -$35,944.75 -$105,421.71 -$128,719.21 $14,051.59 $123,538.65 $197,001.65 $1,090,541.48 $3,192,041.72 $7,274,022.72

As show in the table above, if we pay off the $300,000 loan in year 5, we will make enough return to justify the internal and external funding in year 8, when we reach a cumulative EBT of
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more than $1,000,000. It takes 4 years for us to make enough money to return for the $500,000 investment in year 4. However, our cash flow will jump up significantly since then. After year 8, our Free Cash Flow will be enough for us to pay back both the internal funding and external funding with great rate of return. As you can see in Exit Strategy section, we predict 58% annualized rate of return for us and 50% rate of return for the investors in year 4 if we can sell our company in year 10 for $20 Million Dollar. In fact, based on our cash flow calculation, if we are on track to keep up with these profits, we believe the company worth much more than $20M.

Contingency Plan:
One of the most important assumptions we make in our Cost Structure is the price of the items we buy: $200 in average. If this average price varies too much, we will have a lot to adjust. First and foremost, if the price to buy items became too high, we will have much less items to rent out and it will decrease our revenue projections significantly. In addition, we do not want to trade off quality for quantity. With the assumptions of $200, we expect to get products with good quality and durability. In the first few years of operation, we would want to get a good impression from customers and willing to reduce the money for other expenses and spend more on buying high quality items. Another possibility is that a big company in fashion or rental service industry or RTR themselves may offer us a buyout. Although it seems like good news at first, we need to proceed with cautious for several reasons. First of all, since they are coming for us, that means they believe we have something valuable to them, either our customer base or our cash flow. We need to carefully study the deal they offer and consider the valuation we already have on our company. The valuation may differ from what we have earlier since the real world might be different than what we expected, we need to adjust our valuation and come up with appropriate decision.

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Exit Strategy
Our company proposes an exit for founders and investors by Year 10 of operations. We hope to acquire $500,000 in funding from investor in Year 4 to grow our business by increasing our inventory for rental, improving our equipment, and hiring more employees. The life of this investment would be 6 years and the company is valuated to be worth approximately 5 times the Earnings Before Tax (EBT) totaling $20,000,000. Investors percentage of interest in the company by year 10 will be 28.48% based on a required return of 50%. Merger/Acquisition Liquidation Operate on permanent basis Value of Company: $20,000,000

Value of Company: Carrying Value of Assets: $28,585,000 $20,000,000 Offer to sell for M&A: $25,000,000 FMV of Assets: $17,151,000

Buy back investors share of interest in the Due to the nature of our business, our assets company based on the include rental inventory of jewelry and valuation in Year 10. accessories. For a liquidation event to take place, the value of the assets would drop lower than the asset value. We assume that the fmv is 60% of the total asset value. Investors initial investment: $500,000 Investors share: 28.48% Investors cash-out (28.48% * 17,151,000): $4,884,604 Investors initial investment: $500,000 Investors share: 28.48% Investors cash-out (28.48% * 20,000,000): $5,696,000 PV = -500,000 N=6 Rate of Return = 50.00% FV = 5,696,000

Investors initial investment: $500,000 Investors share: 28.48% Investors cash-out (28.48% * 25,000,000): $7,120,000 PV = -500,000 N=6 Rate of Return = 55.69% FV = 7,120,000

PV = -500,000 N=6 Rate of Return = 46.21% FV = 4,884,604

Based on the scenario analysis above, merger and acquisition would be the most favorable outcome for exiting in Year 10. In order for a merger or acquisition to occur, the perceived valuation of the company will be higher than the actual valuation which would yield a higher acquisition price. Due to this, the rate of return will always be higher than the rate of return if the company were to continue operating permanently. The liquidation event would only be favorable if the FMV of the total assets are to be appraised at a value higher than the book value and greater than the offer for acquisition. The company should continue on permanently if there are no buyers or market for the company and goods.
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