Wine in Style

Eberhardt is at an interesting junction with WineinStyle and one that is not all that common, especially here in Silicon Valley. As a growing company becomes cash constrained, it has to make a few choices about how it is going to increase working capital.

For WineinStyle, I see the choices as follows: First, consider identifying ways to decrease current expenses to free up cash flows. On page 13 of the case, it is discussed that Eberhardt believes that they can accomplish this by operating more efficiently. However, based on the current operational structure of WineInStyle, I don't believe that there is significant room for growth. The company does not carry a significant amount of inventory and has already invested in operational efficiencies through its order management system. Furthermore, growth takes cash! It's unreasonable to believe that the company won't have to hire more individuals or bring on additional inventory as it expands at the rate it would like. I'm not arguing for inefficiency but there seems to be little room to improve working capital in the short run.

Another consideration for WineInStyle is that it could raise debt instead of giving away equity. This seems to be ill-advised because of the growth the company is looking to pursue. There is a potential for debt overhang where positive NPV projects might not be taken on because they might limit the companies ability to pay back the debt holders. More information on the situation is needed to answer this fully but at this time, I would not recommend this course of action.

Therefore, I would recommend that if Eberhardt is looking infuse cash into the company, looking for outside investment makes sense. However, I would strongly caution about moving forward without doing strict due diligence on the interested party. Eberhardt has put in way too much work into the company (even given significant time away from his family) to sell the company to just anyone.