Paras Sharma - 73128167

Athleta goal is to raise $3-4 M in the series E funding and want to embark on the
next phase of growth and development through investing in 5 key areas such as
catalog circulation, MIS, private label development and so on. Athleta is already in
3 years of its operation and have been witnessing 150% of revenue growth year
on year. This article will try to access Athleta in terms of matrix canvas and at the
end would propose recommendation going forward.

Need Womens sports segment represents incredible growth rate, has huge
participant base and there are group of customers who are not satisfied with
traditional retailers. Customers would not mind in spending more on high quality
merchandise.

Solution Athleta has been in operation for the past 3 years and has enhanced
customer base dramatically and most of its customers are repeat customers. The
company designed its own clothing line as customers requested the kind of line
and style that has not yet been created (eg. hard to find sizes such as tall or
petite). Athleta did not believed in reverse engineering or in selling clothes at
cheaper prices.

Team Athleta comprises of stellar team. All the staff members are previous
athletes and knows about the business from inside out. Kerslake himself have
been ardent sportsperson and acted as a founders market. Other executives or
key people bring diverse experiences. Staff was trained to bridge the gap between
customers needs and solution. It did not set sales goals so that sales staff could
focus on finding the best product for each customer.

Market In 1999, It was known that 21.2 M women participated in sports. In 2001,
58% of healthcare club memberships were used or taken by women. Further,
women spent around $25 B on sport apparel and broader market for women
exceeded $96 B. So, the market was there and growth was imminent.

Competition It was divided in four tiers. Tier 1 being women-specific sports

retailer exclusively on the womens market; Tier 2 being specialty sports good
retailers concentrated on the particular market with selling mid & high end
products. Athleta represented a mix of Tier 1 & Tier 2, making specialty women
products but with mid or high end products.

Network Although not everyone brings the experience of startup company but
Teams reputation is relevant to the overall success of Athleta so far. Athleta has
been able to raise 4 rounds of funding and thus represent decent level of access
to investors.
Selling Athleta drove its 70% of revenue from direct mail catalogs and 30%
revenue from website. Many investors were concerned due to cannibalize nature
of the various channels but Athleta believed that offering consumers wide variety
of choices fostered stronger customer relationships.

Operating Athleta raising the money to up the ante. They want to invest in its
MIS (to access detailed financial reporting for distribution channels), improve
supplier terms (in order to reduce COGS by 2%), increase catalog circulation (to
expand to 20 M more customers) and team expansion (so that grass-roots market
could be enhanced). These among other activities would Need
10
bolster Athletas future. Managing 8
6
Solution

4
Operating 2 Team
0
Managing Athleta believes that the professional life values
should not be different from that of personal lifes. The HQ Selling Market

was build close to preserve so that employees could easily go Network Competition

running or cycling during breaks. This led to lower than average industry turnover
rate, and attracted top talent.

Overall, Athleta company looks strong in terms of Matrix Canvas. Nonetheless, just
3 months of cash left in the account, Athleta is looking desperate to find cash and
to start next phase of its growth. Below mentioned 3 options are briefly described
and assessed

1) Commercial Banks Based on the key business activities (please refer to

excel) in terms of solvency, profitability and efficiency, Athleta looks dicey.
Further, Athleta could only get credit anywhere between $ 750K to $2 M,
falling short again as it did for series B of its target funding of $3-4 M. With
huge negative net income (higher risk), it will be hard to persuade any bank
to get the loan especially in relation to stringent credit markets of 2001.
2) Angel Investors Due to crash of 2001, Angel investors have changed their
focus from start-ups to private companies. Moreover, Angel investor could
invest anywhere from $50K to $1 M, this would force Athleta to look for 5-15
different Angles, and accomplishing this feat with 3 months of capital left in
the accounts looks improbable.
3) Venture Capital As hundreds of e-commerce or IT based companies
declared bankruptcy in 2001, VC funding has dramatically dwarfed. Even if
VCs were interested to invest in retail based business model, this would let
to higher discount rates to offset the risk involved. However, Athleta
represents a combination of proven concept, verified management team
and differentiated/growth-driven company. As per VC valuation and DCF
model (please refer to excel), VC can expect 2.5-3X return on its
investment in 4-5 years down the row. In terms of exit strategy, Athleta
could forecast to be either merged with similar size company or to be
acquired by giant retailer. In terms of Athleta, DCF with cost of equity is $6.1
 M which is in turn very close to Round 5 pre-money valuation. So, Kerslake
should follow VC funding route.

Athleta founder had a conservative approach in securing companys culture,

running under constrained capital structure and building vision. Further, with
proposed VC funding and based on the analysis from matrix canvas and assessing
DCF model, it is promising that Athleta is here to stay and would play a dominant
role in future, depending on how and to what extent Athleta be successful in
raising capital and implementing the development goals it has set for coming
years. Further, Kerslake has to make sure that he is able to preserve the unique
culture of Athleta by securing potential stringent term sheet from new VC.