This growing business was planning to expand from Chile into Mexico. But when we ran the numbers through a bespoke forecasting model, the analysis highlighted the rewards of the proposed expansion were not attractive enough to compensate for the significant capital risk they would be taking on.
Smiley Kids launched the first premium quality, organic baby food in Latin America. Their products are similar to those sold in Developed countries, containing 100% organic fruit and vegetables and free of any artificial additives. They are based in Chile, the most advanced economy in Latin America and they’re aiming to become “the premium baby food brand across Latin America”.
Baby food in Latin America is a market ready for disruption. It is a segment dominated by large conglomerates with traditional glass jar products that are stuck in a bygone age. Smiley Kids has established a market leading position in Chile as the premium quality, aspirational brand. And with new distribution outlets in the pipeline, they have a positive story to share with future investors.
The company was finalising a deal with a major retailer in Mexico. This was a significant strategic move for the Company – the deal had potential for large sales growth but required investment to establish a Mexican operation and infrastructure.
We happened to meet one of their investors through a separate project, and soon after, we were invited to meet with the founder/CEO who was assessing their capital requirements ahead of a planned capital raise. The CEO asked us to build a 5-year financial forecast model to assess the returns and capital requirement for the existing business in Chile and the expansion into Mexico.
We created a bespoke model that factored in local market size and expected penetration, taking Smiley Kids historical growth profile in the Chilean market as our starting point. This allowed us to key in different assumptions, and see the impact on sales and expansion.
The finished model was needed within 6 weeks, so we were given constant access to the CEO. Together, we rationalised historic data and fine-tuned the numbers until we had a complete and realistic picture of the business.
The outcome highlighted a less attractive risk/reward outcome for the proposed Mexico expansion than expected, including a longer than expected timeframe for operational breakeven and a higher capital requirement to achieve this. Financial outputs were also extremely sensitive for different sales and exchange rate scenarios. As a result of this analysis the Company decided to delay the expansion into Mexico and focus on existing growth opportunities in Chile.
Following this analysis the CEO asked us to complete a valuation of the business.
This would normally take at least one week to complete, with so many diverse factors to be taken into account – but in the circumstances it was needed urgently, so we had to adapt.
We produced an initial figure within 48 hours. We stressed that it would only be 95% accurate, and more analysis was needed. So they took it as a starting point, while we spent the next few days making sure the percentages and scenarios were in order. The final figure was as expected, within 5% of our estimate.
Next, with a valuation agreed, attention finally turned to fundraising.
The CEO intended to raise $1 Million through existing and new investors and asked us to review a pitch deck – drawing on our experience of working with investors and venture capitalists. We spent a week checking the numbers against our forecasts and valuation, and making sure the deck told a clear, accurate story that stood up to interrogation.
Smiley Kids was able to approach its equity raise with a clearer business strategy and greater certainty over its capital needs. As of now they are well advanced in reaching the $1 Million capital raise target.
Meanwhile, immediate growth plans are centred on the significant growth opportunities available in Chile. In all, they estimate our model saved them over $200,000 – money that will be invested more profitably growing their established business platform.
Our CEO James Vanreusel comments:
“This project shows that we can work to a tight deadline without taking shortcuts or accepting easy answers. We were able to give the client a new perspective, and the clarity to make a mission critical decision. As a result, they got to 10x their investment at the very least.
“We always enjoy projects like this, that begin with a fixed objective and lead to significant change. They’re always rewarding, as we can make a big impact in a short space of time.”
Colin Phillips /
CEO & Co-Founder, Smiley Kids