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The of ServerVault - Case Study Example

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At the dawn of techonology, high-level of technology that is, some inconceivable businesses have become possible. One of these businesses is the ServerVaul which offers businesses and individuals the infrastructure to operate Internet-based application ranging from simple websites to sites featuring complex commercail transactions…
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The Case of ServerVault
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The Case of ServerVault At the dawn of techonology, high-level of technology that is, some inconceivable businesses have become possible. One of these businesses is the ServerVaul which offers businesses and individuals the infrastructure to operate Internet-based application ranging from simple websites to sites featuring complex commercail transactions. The hosting industry provides both physical space for the servers and supporting services which removes the hassle of maintaining hardware or hiring personnel to make Internet applications work.
The business of Servervault was started in early 1999 when Patrick Sweeney convinced Jim Zinn to carve a niche in the hosting industry.ServerVault has chosen the "managed" business model which offers value-added services to the hosting customer such as managing the equipment and applications of the customer. This means that the company chooses customers who value security and reliability heavily in their selection of hosting provider, having the motto, 'reliable, secure and wicked fast". ServerVault claims to offer much higher level of services than the other group at the 'managed" hosting group, having seven layers of security protection which passed the U.S Department of Defense Security Standard and it's vaults are especially designed to be able to withstand the most destructive forces of nature. It's promise of reliability and speed is backed up by redundant bandwith and power supply having four to five providers of internet access in each facility.
The company rakes revenue from three sources: one-time set up for new servers, monthly hosting fees and fees for additional value-added service. ServerVault enjoys the advantage of having a facility designed to generate four or five times more revenue per square foot than those of its competitors.
Being in an industry where business costs occurred mainly upfront and being young in the business, ServerVault faces a deep need for financing. Their first small-scale facility was already complete and is starting to fill up. The management is keen on taking the first mover advantage by building additional facilities as quickly as possible but the company faces cash constraints aside from the fact that they aslo have to expand their workforce.
Defintely, there is no other direction for ServerVault to take but forward. With the big business opportunity that the company enjoys, leverage financing becomes necessary and will definitely be worthwhile.
Having the next facility building scheduled on September 2000, July is the best time to move for financing. The upfront cost is around $6 million and the cost for the new server will reach $200,000, while the personnel cost can be as high as $210,000 per month, totalling to additional cash requirement of around $6.5 million for the Month of September and $410,000 for the suceeding months, until December. Leverage financing can be provided for the additional costs that the company will incur in the following year. Computing the upfront cost for facility, additional personnel expense and server expense, total expenditure for year 2000 to year 2001 will reach 37,170,000 and a total additional cost of 72, 684,000 to finance the entire three-year plan.
The entire amount is definitely too much for financing from friends and family so that established venture capitalists participation in the business is necessary. The negotiations for financing should be done as soon as possible and any excess from the leverage can be used to finance current expense as revenues are still not enough to cover current operating expense. No additional financing for current spending is neccesary. Read More
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