Richard Simpson, a brilliant electronics engineer, left the company
he had worked for ten years in order to set up his own business. He felt
there was a gap in the market for low-priced computer components.
An overdraft facility of L25,000 together with his savings of L15,000
provided the start-up capital for the firm, Digitex.
He began by hiring another person to help him develop the components.
The two of them spent the next six months producing the type of products
they felt the market needed. When they had built up a good supply of components,
they set about trying to sell them. To Richard's surprise this proved very
difficult. Many potential customers seemed to be suspicious of the low
price of the products. Other customers clearly saw Richard's company as
a newcomer not to be trusted - a cowboy outfit who would be here today
and gone tomorrow.
It was over a year before Richard got his first order. By that time
he had an overdraft of L40,000 and no more money to make further supplies
of components. He was spending all his time advertising the products, running
around to meet customers and trying to persuade them to buy.
Three months later, a few large orders were received, but Richard realised
that he would have to wait two months or so before being paid.
At that point the bank manager lost confidence in the business . He
informed Richard that he was calling in the overdraft.
After rushing around and talking to a lot of people, Richard received
firm offers from two venture capital companies. The first was prepared
to invest L200,000 in return for an 80% share of Richard's business; the
second was willing to put up L250,000 for a 90% share.
This was the situation facing Richard Simpson fifteen months after he
had set up his high-technology enterprise.
