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This is going to be 1 page analysis of the case. There is also an EXAMPLE of how the case should be done(apple case). The case that should be done is lit motors which is attached.

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Case analysis assignments are designed to demonstrate your analytical abilities and your critical thinking skills.  They are NOT summaries of the case.

For each assignment, you need to show:


–  The top issues which you think prompted the case to be written

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–  Your consideration of each issue, including any action that must be taken to address the issue and the pros/cons of that action

Write the last paragraph as what you would do as an investor of the company.

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greeNEWit: Financing the Next Level

Susan White, University of Maryland Karen Hallows, University of Maryland

Green. A color with a lot of meanings. e most immediate thought Josh Notes, cofounder of greeNEWit, an energy audit rm1 in Columbia, Maryland, had was the importance of green and clean energy to his company. Green also was

the color of money. In the rm’s ve year existence, it had made do primarily with loans from friends and family, credit cards, and bank lines of credit; all short term sources of nancing. With the rm posting $4.1 million in revenue in December 2012 and more growth expected in the future, greeNEWit needed more nancing options and longer term sources of this nancing to fund that growth. To date, the only long- term nancing had been modest equity contributions made by the founders. While the high growth of the early years was unlikely to continue, Josh and his partners needed to decide how to continue to grow in the future and to fund that growth. He realized the rm’s past sources of nancing were not sustainable. Not only did Josh believe that his energy audit business was helping families and improving the environ- ment, but he believed there was a multibillion dollar market waiting to be tapped. He expected that the next big area in the energy industry would be managing family energy usage and sustainable energy sources that could in turn transform the electric distribution system.

The Founders

Josh began his business career as a caddy, where he made a lot of contacts among golf- ers who later helped him start his own business. He graduated from the University of Maryland in 2006 with a degree in nance. “At the heart of the housing boom, eve- rything was good,” Josh said. “Just slap a derivative on anything and Wall Street loved it.” With his brother, Zach, and a friend from school, Josh formed Terrapin Ventures I, a real estate investment trust. e trust raised $110,000 and made a 7 percent gain its rst year. Terrapin Ventures II, a new fund started in 2008, crashed and burned when the housing bubble burst, with the $140,000 investment taking a 53 percent loss. Josh

Copyright © 2016 by the Case Research Journal and by Susan White and Karen Hallows. An earlier ver- sion of this case was presented at the North American Case Research Association Conference in Austin, Texas, October 2014. Some names in the case have been disguised to preserve anonymity.

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did not let this experience discourage him from being an entrepreneur. “I don’t take ‘no’ for an answer unless I hear it 30 times or more. But you also need a plan B if plan A doesn’t work,” he said. A proponent of the “Lean StartUp” philosophy, Josh believed in the idea of adapting quickly.2

Josh’s interest in energy sources and uses led him to connect with greeNEWit’s cofounders Jason Jannati and Matej Harangozo, whom Josh described as optimists with insane risk pro les. e three conceived the idea for their rm in late 2007 while they were all separately involved in real estate in some capacity. While they had com- mon ground as their work as real estate professionals, none of them were entirely ful lled with what they were doing and wanted more. Josh explained how working in real estate led to the idea behind greeNEWit:

At its peak, my real estate fund owned 35 homes in the Baltimore area. I got notices from the city that the lawns needed cutting on many of the properties or there were other maintenance issues. In working to prevent code violations on the properties, I realized that the occupied properties had operating expenses and could use help with energy and its interconnections. If we could help people save money and make their homes more comfortable, we could be relevant.

As the friends further realized their common interests, they started spending more time together planning what would become greeNEWit. Josh shared his experience majoring in nance at the University of Maryland and they each learned more about each other’s jobs, backgrounds, passions. Jason attended Lycoming College in Pennsyl- vania and studied communication while Matej worked to obtain a degree in mechanical engineering from the University of Maryland Baltimore County. e three furthered their education by becoming BPI (Building Performance Institute) certi ed.3 It was there that the partners learned how a home operated and how homeowners could control their energy usage. According to Josh, greeNEWit was in the business of anti- consumption—teaching people to use less.

A MATTer oF CoMMon sense

e founders knew that conserving energy and natural resources was a matter of com- mon sense. ey believed that making life, energy, and our planet better every day was achievable through their actions and of those around them. Speci cally, their families— along with their neighbors and friends—had high energy bills. rough research, they learned that the people who solved these problems were energy auditors. ey thought this would be the easiest way to enter the energy marketplace. e energy audit busi- ness was a service business requiring less start-up funding, unlike electric generation and distribution which were highly capital intensive. ey decided to plunge into this new business—and acquire on the job training—and greeNEWIt was born in 2008.

greeNEWit’s owners were strong in di erent areas with talents that complemented each other. ey believed that this was one of their greatest assets. Josh had a strong background in business strategy, operations, accounting, and nance that was critical to the organization. He also brought a great deal of industry knowledge as he was a founding member of the Mid-Atlantic Chapter of E ciency First (www.e ciency rst. org) and was a national contributor to the home performance workforce best practices committee. Jason was the rm’s brand strategist, in charge of the company’s marketing e orts and responsible for de ning the high-level strategic marketing direction and a liate partner initiatives. Matej was the innovative technologist and web/software

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systems visionary. He developed the software platform and information integration protocols for the rm and was a member of the Home Performance Data Standard XML Board and Howard County Tech Council.

As comprehensive energy consultants, the three owners provided energy audits to Maryland homeowners and renters and delivered quick home energy check-ups to multifamily properties and single-family homes. greeNEWit provided some imme- diate savings through things such as installation of energy e cient light bulbs and water-saving showerheads on the spot. ey also provided suggestions to homeowners about how to further reduce energy through home improvements such as additional attic insulation.

The greATessT

“ e industry is in need of greater operational e ciency,” according to Josh. greeNEWit developed a software platform, called gREATESST, that helped facilitate the work of both energy industry employees and governmental regulators. It was developed to address the administrative burden plaguing contractors and program administrators in the energy e ciency industry. gREATESST stood for Globally Recognized E ciency Automated Technology with Engineered Systems, Solutions and Training. It started out as an Excel spreadsheet and a few macros that automated processes. Josh explained the genesis of the acronym: “We were joking about this—that we didn’t just need a system—we needed the greatest system. We couldn’t think of an acronym without the extra S.”

is software digitized the paperwork needed to obtain utility and government rebates, and created a exible interface mapping the pages that needed to be lled out. An energy e ciency worker could complete the forms for a customer in the eld using the gREATESST software, return to the o ce and upload the data into a data- base, send the forms electronically to the utility, and the utility paid the rebate. Josh explained:

Without this software, home and business energy auditors would need to ll in infor- mation on a clipboard, scan it into their company’s data base, re-enter the information if it didn’t match, and resubmit, a very cumbersome process, especially if you were doing many energy check-ups in a day. e software also provides a comprehensive checklist and a detailed action plan for the homeowner. A report that used to take 3–4 hours now can be created in minutes.

Even very energy-conscious consumers, with regular home maintenance schedules, were often unaware about how their home interacted with its energy systems. Josh continued, “Many consumers were unaware of the important role played by the least visited part of their home, the attic. Maybe the attic was insu ciently insulated, or unevenly insulated, leading to cold and hot spots throughout the home. Maybe the hidden ductwork in the basement or attic needed repair. e energy audit looked into corners that homeowners rarely see.” Josh’s long-term plan was to increase licensing of this software nationwide.

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speCiFiC Business Lines

Quick Home Energy Check-ups

greeNEWit contracted with the local utilities to implement some of their energy e ciency programs. One popular program was the Quick Home Energy Check-up Program (QHEC, pronounced Q-heck), which allowed single family and multifamily properties to get energy-e cient products installed at no additional charge as part of the Empower Maryland legislation. Under this program, funded by utility ratepayers, employees visited homes, multifamily apartments, or condo units and installed energy conservation measures where needed.

By the end of 2012, greeNEWit installed 418,224 compact uorescent light bulbs in more than 43,107 residences in Maryland, which saved 18,550,915 kWh of elec- tricity and 427,747,132 gallons of water annually. e rm started out with more comprehensive residential energy audits, but moved to QHEC’s because of the higher volume.

Home Performance with Energy Star Energy Audits

e Home Performance with ENERGY STAR® Energy Audit was another part of greeNEWit’s portfolio of services that could help improve a home’s comfort, energy e ciency, durability, and safety while lowering utility bills for homeowners. e energy audit pinpointed how speci c improvements throughout a home could work together to make the entire home more comfortable and save money.4

Commercial Services

“Energy services to apartment buildings are often heavily subsidized programs. is means that the utility pays and the company receives the bene t without needing to make a large nancial outlay,” Josh said. Because this was lucrative and provided a needed service, greeNEWit moved into providing consulting services to commercial rms and multifamily properties across the nation. e company o ered a comprehen- sive approach to building e ciency that included system evaluations, do-it-yourself energy saving practices, upgrades and occupant and operator training programs.

Utility Rebate Analysis

greeNEWit o ered solutions focusing on energy and water saving upgrades for multi- family properties through their data analysis and information gathering services. Here, greeNEWit took a customer’s utility bills, occupancy data, and energy incentive data for a speci c location and developed a portfolio of energy e ciency suggestions. ese recommendations could include which properties would bene t the most from retro- tting energy e ciency upgrades. e company partnered with local rms that did the actual work that was needed to make the property more energy e cient. greeNEWit operated its utility rebate analysis primarily in Maryland, Pennsylvania, Virginia, Dis- trict of Columbia, Delaware, and New Jersey.

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Energy Adviser Training

greeNEWit worked with national utility companies to provide training services that allowed utilities to better manage customer inquiries and provided recommendations that added value while creating energy saving opportunities. e training taught cus- tomer service representatives to teach customers about ways they could manage energy costs and consumption. According to Josh:

We give them an intensive three-day energy lesson so they will be able to think like energy auditors. We also provide the utilities with a customer service strategy, teach customer representatives how to better answer customer questions and how to present energy solutions in a patient, non-argumentative way.

e company trained more than 100 energy advisers employed by a local electric utility which served millions of customers in the Mid-Atlantic region.5

e rm gained local brand recognition through a variety of awards. greeNEWit’s founders won the Horizon Foundation’s Gira e Award (for sticking their necks out), becoming standout social entrepreneurs. e rm was named Green Company of the Year in 2012 by the Howard County Technology Council and made the U.S. Cham- ber of Commerce list of 100 Best in Small Business in 2013. Josh was on the list 14 Young Entrepreneurs to Watch in Washington DC by Under30CEO, and was on the 30 under 30 list in Home Energy Magazine. He was named Maryland Green Entrepre- neur in 2012. e three cofounders were also recognized at the White House for their contributions to America’s economy and entrepreneurship.


greeNEWit faced a great deal of competition in the areas it served. One of the rm’s main competitors was BGE Home, a company spun o from Baltimore Gas and Elec- tric (BGE), one of the larger Maryland gas and electric utilities. BGE Home provided energy audits, sold and installed furnaces and hot water heaters, and sold plumbing and HVAC (heating, ventilation, and air conditioning) services. Josh estimated that there were up to 100 competitors providing similar services, although BGE Home was the largest. Information about large, publicly traded companies in roughly the same line of business is in Exhibit 1 and information about comparable transactions for smaller companies in greeNEWit’s industry is in Exhibit 2. According to IBISWorld, the energy consulting industry, which focused on residential and commercial energy e ciency, was expected to grow 5 percent–6 percent from 2013–2016. is was about double the expected 2.5 percent long-term growth in GDP (Gross Domestic Product).

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Exhibit 1: Comparable Public Companies Ecology and Environment, Inc.

Ecology and Environment, Inc., an environmental consulting rm, had services includ- ing environmental impact assessments, feasibility and siting studies, and permitting and due diligence audits. It consulted with corporations and governments concerning incident management, emergency response, hazardous waste site evaluations, environmental restoration and incorporating green elements into the organization. Founded in 1970, the rm was headquartered in Lancaster, New York.

Willdan Group (WLDN)

Willdan Group, Inc., and its subsidiaries, provided consulting services to governments and governmental agencies concerning building safety, code enforcement, development plan review, disaster recovery, environmental remediation, energy ef ciency, sustainabil- ity and climate action plans, federal compliance, and homeland security areas such as disaster preparedness. Willdan Group, Inc. was founded in 1964 and headquartered in Anaheim, California.

SmartPros (SPRO)

SmartPros Ltd., provided learning and training solutions in the areas of nance, law, engi- neering, insurance, banking, and information technology. The rm provided training in nance, taxation, ethics, health and safety, compliance and human resources. SmartPros Ltd. was founded in 1981 and was headquartered in Hawthorne, New York.

Company Ecology and Environment Willdan Group SmartPros
Data as of 7/31/12 Beta 0.81 Price $11.19

12/28/12 1.0 $3.61 7.38 M 93,443 K 19,255 K –17,300 K 124 K 3,780 41,977 K 1,782 K 24,128 K 48,146 35%

12/31/12 –0.01 $2.14 4.68 M 8,855 K 1,178 K –1,895 K 0 0 15,956 K 8,363 K 6,045 K 9,847 K 20%

Shares outstanding Revenue Operating income Net income

Long term debt
Current portion of long term debt Assets
Current assets
Current liabilities
Book value equity
Tax rate

4.25 M 155,410 K 4,784 K 774 K 103 K 12,798 97,512 K 82,546 K 44,035 K 48,146 35%

Source: Thomson One

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Exhibit 2: GreeNEWit Comparable Multiples and Transactions

Small Company Data
Part A—NAICS Code 541350: Home Inspection Companies
(6 Transactions)

Statistic Count Range Mean Median
Sale date
Net sales
Market value of invested capital (MVIC) EBITDA
Net income
Gross pro t margin
Operating pro t margin
Net pro t margin
MVIC/Net sales
MVIC/Gross pro t
MVIC/Book value of invested capital

6 10/2/2008–10/10/2013 6 $29,090–$1,893,721 6 $26,500–$6,849,605 5 ($1,710,108)–$797,563 6 ($1,734,065)–$797,563 5 ($2,024,228)–$797,563 6 0.52–1.00 6 –2.64 5 –2.96 6 0.50–7.61 6 0.54–14.51 5 1.28–69.24 4 2.63–32.88 4 1.72–4.50 1 5.33

N/A N/A $719,401 $607,485 $1,800,351 $878,000 ($106,631) $21,762 ($89,843) $20,467 ($166,642) $20,746 0.85 0.94 –0.06 0.2 –0.15 0.33 2.06 1.01 3.33 1.03 17.08 4.5 11.8 5.83 3.16 3.21 N/A N/A

Part B—NAICS Code: 236118 Restoration Contractors

(20 Transactions)

Statistic Count Range Mean Median
Sale date
Net sales
Market value of invested capital (MVIC) EBITDA
Net income
Gross pro t margin
Operating pro t margin
Net pro t margin
MVIC/Net sales
MVIC/Gross pro t
MVIC/Book Value of Invested Capital

20 3/14/2008–10/25/2013 20 $139,488–$3,102,393 20 $55,000–$1,200,000 16 ($10,226)–$366,530 20 ($33,563)–$358,507 20 ($33,898)–$325,808 20 0.20–1.00 20 –0.5 20 –0.5 20 0.13–0.95 20 0.21–2.67 17 0.58–14.58 14 0.58–14.56 16 0.58–4.42

5 1.08–5.41

N/A N/A $1,009,882 $819,284 $481,100 $467,500 $114,378 $98,352 $90,465 $54,943 $82,585 $52,359 0.65 0.71 0.13 0.1 0.12 0.07 0.54 0.57 0.96 0.9 6.36 4.57 5.56 3.23 2.55 2.37 2.82 1.26

Source: Pratts Stats

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eMpower MAryLAnd energy eFFiCienCy ACT oF 2008

e Empower Maryland Energy E ciency Act of 2008 required Maryland electric consumers to pay a surcharge to fund energy e ciency programs. e state’s goal was to reduce per capita energy consumption by 15 percent by 2015. e act paid for many of the services provided by greeNEWit. “ e state decided the best way to incentivize energy demand reduction was to place a small tax on all electricity users and redis- tribute it back to users for energy conservation purposes,” Josh said. Although the act speci cally targeted residential customers, the Empower Maryland funds were primar- ily used by commercial and multifamily property owners since commercial enterprises and apartments consumed more energy than single family homes. Commercial energy audits created more revenues for greeNEWit. One of Josh’s goals was to get the word out to more residential electric customers about energy audits.

greenewiT’s ChAriTABLe CAMpAigns

One of the growing items on the rm’s income statement was “executive team expenses,” which included donations made by the rm to sustainable energy education projects. e OUR Schools Program7 was started by greeNEWit to provide energy education at no cost to public schools. It included sustainability-focused elementary school assem- blies along with lesson plans and curricula for Maryland teachers to educate students, sta and other administrators about the importance of sustainability and reduced energy consumption. In addition, the company created an energy savings incentive which gave back $20 for each completed QHEC and $40 for each completed energy audit to the schools. e program had reached thousands of students in four Mary- land counties and had provided funds for extracurricular environmental clubs, school energy e ciency upgrades, Green Schools certi cation, and environmental eld trips. (greeNEWit also extended this model to reach nonpro ts and faith based organiza- tions in the community.)

greeNEWit also started Cleats for Bare Feet to obtain donated athletic shoes and sports equipment and give them to disadvantaged youths worldwide. is social initia- tive completed a 45-day campaign in May through the crowdfunding site, Indiegogo. rough the website, donors could track the whereabouts of their donations and connect with the end recipient of soccer cleats and other sporting equipment. e program had collected 6,000 pairs of shoes and distributed them to Haiti, Kenya, Jamaica, South Africa, Zimbabwe, China, Senegal, and the U.S.

Both Cleats for Bare Feet and the OUR Schools Program were part of the rm’s Agents of Change (AOC) Internship Program designed to mentor high school and college students about entrepreneurship. Interns received educational credits for par- ticipating. Each AOC was assigned to a project and asked to develop his or her own innovative and creative ideas to nd a solution.

As part of a partnership with Opportunity International, a micro-lender and chari- table organization, greeNEWit gave gift cards for loans to micro-entrepreneurs. Firm employees could choose an entrepreneur in one of twenty countries where Opportu- nity International operated to lend the entrepreneurs money and follow the results of the loans.

greeNEWit also looked closer to home to provide jobs for people who tradi- tionally had di culty nding jobs. One of the rm’s advertising vehicles was sign

8 Case Research Journal • Volume 36 • Issue 2 • Spring 2016

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spinning—hiring people to twirl signs on the streets to advertise their services.8 eir sign spinners worked 100,000 hours in a year and had the 2009 nation’s fastest spinner on their team. Josh noted that this provided jobs to inner city youth and paid more than minimum wage.

pAsT And FuTure FinAnCing

e rm’s nancial statements for its ve years of existence are in Exhibit 3 and market information in Exhibit 4. greeNEWit’s revenues had grown exponentially in a short period of time, from $17,250 to $4.1 million in just ve years. e rm’s revenues made their biggest jump from $387,900 in 2011 to $4.1 million the following year. e increase in revenues came from a contract with a single utility client and signaled a big change in the size and scope of the rm. Josh noted, “You’re never ready for this kind of ramp-up. We made mistakes because we were undercapitalized, such as taking on jobs we weren’t equipped to handle yet.”

Exhibit 3: greeNEWit Financial Statements, 2008–2012
Income Statement


$2,967 $78,106 $3,500 $0 $84,572 $5,444 $79,128


$31,755 $85,442 $1,811 $51,311 $184,763 $840 $183,923


$4,895 $23,870 $0 $10,524 $2,785 $81,055 $17,054 $6,467 $0 $150,592 $33,331 $4,152 $2,177 $27,001


$3,139 $332,202 $0 $48,484 $387,900 $49,842 $338,058


$1,305 $46,166 $0 $26,628 $3,113 $100,993 $16,486 $7,394 $0 $205,698 $132,360 $8,156 $1,537 $122,668


$14,877 $4,012,114 $0 $45,832 $4,073,509 $1,059,502 $3,014,007


$27,444 $132,547 $0 $149,416 $23,103 $1,297,384 $274,029 $138,568 $1,577 $2,009,932 $1,004,075 $12,793 $1,979 $911,545


General Income $100 Residential Energy Solutions $17,150 Commercial Energy Solutions $0 Consulting, Training, and Administration $0 Total Income $17,250 Cost of Goods Sold $0 Gross Pro t $17,250 Expenses

Accounting Expenses $235 Depreciation $0

$759 $5,843 $12,501 $59 $13,752 $1,679 $30,729 Travel, Rent and Other $4,307 $10,535 Executive Team Expenses $297 $2,425

Admin, O ce, and Tech Management
Small Tools
Marketing and Sales
Insurance $694 Payroll $0

$5,167 $66 $7,264

Processing/Reimbursements $79

$153 $78,435 $694 $622 $600 –$528

$18,109 –$859 $0 Taxes $39 Net Income –$898

Total Operational Expenses

Operating Pro t Interest Expense

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Balance Sheet

Current Assets


2009 2010

293 9,318 950 33,914 0 0 0 0 698 0 1,941 43,232 19,525 27,682 0 0 0 0 10,558 0 30,083 27,682 5,843 24,420 24,240 3,262 26,181 46,494

0 150 10,936 35,930 1,000 42,502 0 476 0 675 590 0 #REF! 79,733 #REF! 79,733

6,639 –18,582 6,728 –19,676 1,100 –21,982

0 0 0 0 0 0

–823 27,002 13,644 –33,239 #REF! 46,494


98,479 153,783 15,765 0 0 268,027 27,682 0 0 0 27,682 25,725 1,957 269,984

8,736 36,878 129,793 0 5,654 0 181,062 181,062

–9,384 –11,574 –12,788

0 0 0

122,668 88,922 269,984


5,789 953,442 6 7,000 0 966,237 13,089 41,007 25,610 0 79,706 53,169 26,537 992,774

68,226 9,358 70,000 0 86,855 0 234,439 234,439

31,514 29,314 28,097

–78,627 –85,481 –78,027 911,545 758,336 992,774

Cash 9,637 Accounts Receivable 0 Inventory 0

Loans (Current portion)
Other Current Assets
Total Current Assets
Furniture and Equipment
Computer and Technology Equipment Leasehold Improvements

Gross Fixed Assets Depreciation
Net Fixed Assets

Current Liabilities

Accounts Payable
Credit Cards
Notes Payable
Payroll Liabilities
Tax Liabilities
Other Current Liabilities Total Current Liabilities Total Liabilities


Josh Notes Equity Investment Jason Jannati Equity Investment Matej Harangozo Eq Investme Josh Partner Distribution

Jason Partner Distribution Matej Partner Distribution Retained Earnings

Total Equity


0 9,637 13,682 0 0 0 0 0 13,682 23,319

0 0 0 0 0 0 0 0

7,439 8,458 7,716

0 0 0

–294 23,319 23,319

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Exhibit 4: Financial Market Information

Risk free rate (10 year bond rate, as on 12/12, from www.federalreserve.gov) Equity risk premium
Small company risk premium (in addition to the large company risk premium) Cost of high yield debt

L.T. U.S. Treasury Bond Yield (20 year)

L.T. historical expected equity risk premium: Large company stock total returns minus L. T. government bond income returns

L.T. supply side expected equity risk premium: Historical equity risk premium minus price to equity ratio calculated using 3-year average returns

Source: Ibbotson and Associate, Stocks, Bonds, Bills, and In ation 2011 Yearbook


6.00% 10.00% 11.00%

3.00% 6.5%


greeNEWit had a variety of sources for funding in the past—credit cards, then friends and family nancing, then bank lines of credit. e rm’s rst funding in 2007 came from Josh, Matej, and Jason’s personal credit cards, still open now but unused for several years. e total borrowing power from the three cards together was $29,200. Two years later the three founders took out second personal credits cards, for addi- tional funding of $18,500. A year later, each obtained yet another personal card for an additional borrowing capacity of $23,500. In all, Josh was responsible for credit cards with limits of $32,500, Jason for $20,000, and Mataj for $18,700. e credit cards carried interest rates from 4 percent (introductory rate) to 12 percent. eir credit card strategy was to make sure that they did not borrow the maximum allowable amount on their credit cards. Josh explained:

All three of us pledged everything we could. I researched what went into credit scores. For example, I knew that you should not borrow more than 80 percent of allowable credit. We always made more than the minimum payment, but not much more. We found that the more we borrowed the better credit we had. If I got denied for one card, I opened one at another bank. At one point, I had 13 credit cards open, all getting close to that 80 percent maximum.

Josh and his partners depended on low promotional interest rates, transferred bal- ances frequently, and took money from one credit card to make payments on another one. “It was a juggling act. It was hard to believe someone from the bank wasn’t at my door, asking ‘what are you doing?’” Josh continued. “I don’t think I’d want to do that again. I have a baby now, and my risk pro le has changed. But at the time it seemed like the right thing to do. I understood that if it didn’t work out, we would all ruin our credit. Using credit cards the way we did was like jumping o a cli and trying to land on the right lily pad.” greeNEWit continued to use credit cards, but rm cards, rather than personal credit. e rm had two credit cards with an available balance of $35,000.

e rm’s rst outside nancing came from a $25,000 loan from the Howard County Economic Development Authority (HCEDA). e loan was for two years, with 8 percent interest and was personally guaranteed by the three founders. With the backing of the HCEDA, greeNEWit was able to obtain a working capital line of credit from a local bank for an additional $25,000 at a 2 percent interest rate. e loan was backed by the Small Business Administration. greeNEWit used part of the HCEDA loan to hire employees in new roles and to help develop gREATESST. “ ese loans

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were important to the continuation of the rm. ey were not as oppressive as our credit card debt,” Josh said.

is level of nancing was still insu cient to fund greeNEWit’s growth. e rm received money from family and friends. is included an 8 percent $20,000 loan from Josh and his new wife with money taken from their wedding gift checks. Josh’s mother loaned the rm $200,000 at 10 percent interest from her IRA. Jason’s mentor also lent the edgling rm $100,000 as an eight-month bridge loan at a 20 percent interest rate. Josh noted that his was a story of a committed family who wanted to see the business succeed.

greeNEWit decided factoring its receivables, while expensive, was the only way to get the funds necessary for additional growth. e factoring rm gave greeNEWit 80 cents for each dollar of accounts receivable, a $500,000, 15-month loan carrying an interest rate of 10 percent to 15 percent, and A-rated because the rm’s customers were highly reliable utilities. However, the rm received large, uneven payments from their invoices to the utilities. “We couldn’t borrow enough on our own while we were waiting for the utilities to pay,” Josh explained. “Factoring can be treacherous. ese are like payday loans for businesses—high interest rates, short repayment periods, and taken on only in a time of great need. Whether or not you can work your way out of a factoring loan depends on the rm’s growth cycle and pro t margins.” Josh explained that if bills are not collected in a timely manner, then the factoring rm no longer counts those amounts as part of accounts receivable. “Let’s say the factoring rm has loaned you money based on 80 percent of the amount of your accounts receivable. en one of the invoices in that 80 percent doesn’t pay in a timely manner. e factor- ing company considers that invoice to be void and the next money that comes into the rm from its accounts receivable must be used to pay back the loan you were given that was backed by the old invoices. If customers don’t pay quickly, then the rm can fall into a black hole where interest is accruing on interest. We didn’t fall into that hole; we paid the loan o after fteen months. I did a lot of research on factoring rst,” Josh said. “My goal was to get out of that factoring arrangement as quickly as possible.” e factoring loan made it possible for greeNEWit to expand its Quick Home Check Up program, pay back all three bridge loans, fund payroll and pay bills.

e next step in greeNEWit’s nancing was traditional bank loans. In early January 2013, the rm obtained a $500,000 line of credit from a regional bank. is working capital loan carried a prime interest rate of 3.25 percent plus 50 basis points. However, getting to that point required personal bridge loans from the three partners. Each of the three owners lent the rm $40,000 for ve months in 2013 at a 10 percent interest rate to manage nancial needs from the time the factoring loan was paid o until they could nalize the regional bank loan.

greenewiT’s orgAnizATion

greeNEWit was organized as an LLC, a limited liability corporation. Because the rm was taxed as a partnership, the partners were taxed at their individual tax rates. e rm covered the partners’ taxes. greeNEWit quickly moved beyond the three part- ners’ ability to handle the rm’s needs, and had twenty- ve employees within ve years. “ is meant twenty- ve employees and twenty- ve families were depending on greeNEWit for income. Now, we can’t allow the train to crash,” Josh said. e rm’s organization chart is in Figure 1. According to Josh:

12 Case Research Journal • Volume 36 • Issue 2 • Spring 2016

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Each department has grown organically—we developed it as it was needed, and if we need to change people around to meet the organization’s needs, we do it. We revisit our strategy regularly. If something goes wrong, we take a deep breath, smile, exhale, and repeat—everything will work out. Now that we’re growing so quickly, we need to change our mind set and consolidate what we have.

Figure 1: greeNEWit Organization Chart

Client Experience


Support Department





Human Resources


Finance & Accounting



Executive Management Team

Chief Operating Officer

Chief Compliance Officer

Chief Information Officer

Josh Notes Jason Jannati Matej Harangozo

“My partners and I are part of the unique story that is greeNEWit,” Josh said. “We have three very di erent personalities and skill sets, but we all share the same risk pro- le and support network. roughout the lean years we weren’t worried about being hungry—we lived with our parents. If we want to buy homes now we may need to lean on our signi cant others. So far none of us has had to get a ‘real’ job.” e partners did not receive a salary from greeNEWit for the rm’s rst ve years, just health insurance premiums of $250 per month per partner for three years and then $1,000 per month for the next two years. e partners’ current salaries were monthly payments based on the rm’s expected pro ts. Josh and his partners so far have not needed to give equity in greeNEWit to their investors. “When we eventually need outside equity investors, the three of us will have a higher valuation. We hung on through thick and thin, especially through 2009, which was not a good year for start-ups,” Josh noted. “I’ve estimated that we’ll need outside capital within the next one to three years.” Josh had a unique take on invested capital. He believed too much capital in the early years would have crushed creativity and ultimately would have meant a lower valuation for the partners. “We didn’t want too much cash matched with not enough plan for that cash. Good ideas can be killed with too much money. If you have a lot of money, you don’t have to scrutinize your operations as closely as when you are operating on a shoestring. If you can’t sustain your business within 12–18 months, you’re probably not going to make it.” e business followed a “lean start up” philosophy—that the best way to develop an innovative business is to use as few resources up front as possible. en the

greeNEWit: Financing the Next Level 13

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rm should make frequent but small iterations to the product or service, rather than starting out on a large scale.

greenewiT’s FuTure

Josh was concerned that almost all of greeNEWit’s 2012 sales came from its participa- tion in state energy audit programs, which were heavily subsidized by consumer utility fees. is concern led him to consider how greeNEWit could adapt when and if their subsidies ended. “ e rst ten years of the digital revolution were about communicat- ing,” Josh said. “ e next ten years will be about solving problems—through all those interconnected minds.” Josh and his partners wanted greeNEWit to become more than a home energy audit company. “We’re going to become a smart grid integra- tion company and we expect to have a nationwide presence by 2015,” Josh predicted. Smart grid referred to an electrical grid that uses digital information technology to collect information and then act on it. For example, a smart grid can use information about the behavior of electricity producers and users to improve the e ciency, reliabil- ity, sustainability, and costs of the production and distribution of electricity.

Many energy functions can be controlled remotely. You went on vacation and for- got to turn down the heat? No problem—with smart grid integration, a homeowner could signal his house from a distance and reset the heat. “Utility customers bene t nancially if they know how to t into the grid,” Josh said. “Our job is to help them do this.” In 2012, 45 percent of the rm’s revenues came from multifamily dwelling quick home energy checks. In 2013 only 10 percent of revenues were expected to come from this source. “Our bread and butter is multifamily dwelling energy audits, but we expect to build up our commercial business, with contacts from the owners apartment buildings who have other businesses as well.” Josh expected commercial revenue to grow from close to zero to $1 million in 2014. “ e growth in the energy business will come from decentralized power. is will be a trillion dollar business,” Josh thought, with Google, IBM, and Siemens the big players. e next technological wave might be an “internet of things (IoT),” where people could interact with objects remotely. Josh noted that renewable energy sources were more volatile than, say, a coal red plant. “ e sun doesn’t shine 24/7 and the wind doesn’t blow with consistent regularity,” Josh said. “ is is where load balancing, frequency regulation, demand response, synchro- nized reserves, and other grid services are needed to help our aging and archaic electric grid modernize without massive disruption to our daily lives and the digital economy. e future will tell whether the transition from dumb to smart is successful. My bet is that it will be a bumpy ride, but ultimately game-changing.”

“greeNEWit is well positioned as a tech-enabled service business in the growing clean-tech space,” Josh thought. “Since we work with residential, multifamily, and commercial real estate, we have a wide perspective on how energy consumers under- stand, interact, and engage with their energy pro le.” Josh believed that greeNEWit di erentiated itself from its competitors by engaging customers— rst in determining their awareness of their home or business energy systems and then by documenting the interaction between the customers’ building, its mechanical systems, and the consum- ers’ energy behaviors. “ is is where it gets fun,” Josh said. “Each pro le is di erent and based on dozens of variables which create a unique game plan for action to be taken. As a whole, we are an organization healthily obsessed with e ciency, not just electric energy e ciency, but human energy. From our core, we work daily to improve

14 Case Research Journal • Volume 36 • Issue 2 • Spring 2016

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our operations, increase our customer experience satisfaction and quality assurance and verify our results.” For example, each customer who received an energy audit and then reduced consumption based on the recommendations of the audit, install- ing energy e cient appliances, increasing insulation, etc., would help keep the grid functioning. Josh thought this was the next logical area for greeNEWit to enter. Josh believed his business was an early starter in the renewable revolution.

Josh’s deCision

As Josh reviewed the rm’s past nancing, he thought the next step would need to be more permanent, traditional bank nancing. Did the rm have a strong enough bal- ance sheet and income statement to satisfy the bank’s loan team? What was the right mix of debt and equity for greeNEWit to have going forward? In addition to the initial equity contributions made by the three founders, greeNEWit had relied solely on short term nancing. Josh was sure, however, that bank nancing was not the only solution to greeNEWit’s need for additional funds. e rm had successfully crowdfunded a charitable project—could this be a source of funds for the rm, and if so would it be a source of debt or equity nancing? What about venture capital, partnering with another rm, nding private lenders, or new equity? Some of the potential funding sources would involve giving up some of greeNEWit’s equity. “Right now we need capital,” Josh said. “We have a great team and if we can keep investing in our team, we can take greeNEWit to the next level. is is the owner’s dilemma. If we take on a partner, we can focus on the solution without worrying about capital. But it would mean giving up some of our stake in the company. We’re willing to give up 40 percent to key employees and partners.” If Josh and his partners agreed to do this, what would be a fair price, for example, for a 20 percent equity stake in the rm? Even before fund- ing sources were determined, to grow, greeNEWit would need to carve a place for itself amid strong competitors. Josh needed to know how much nancing his rm needed, and how to position the rm for obtaining capital while maintaining focus on existing operations. Josh was unsure about the risks he would be facing in the future, and how best to mitigate them. Exhibit 5 brie y describes potential funding sources.

greeNEWit: Financing the Next Level 15

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Exhibit 5: Funding Sources

Crowdsourcing (Crowdfunding)

Crowdsourcing was a new trend in which businesses nance their operations through small investments or loans from a collection of users of crowdsourcing websites. There were a number of web sites offering different methods of funding for example, Kickstarter, Indiegogo, Crowdfunder, Rockethub, Crowdrise, Somolend, appbackr, AngelList, Invest. in, and Quirky were on Forbes list of the top 10 crowdfunding websites.1 The main fund- ing methods were debt, equity, and reward nancing. Debt and equity nancing mirrored traditional nancing, but debt and equity were usually acquired in small pieces from many sources. Some crowdfunding projects offered a reward, for example, a sample of the product produced, in return for a monetary investment. Most websites specialized in reward nancing, due to lower risk and decreased need for legal oversight. Because of this, it could be very dif cult to nance a project entirely through crowdsourcing—there was often a lack of a strong enough incentive to invest.2

Venture Capital/Angel Investing

Venture capital was a form of investment procured generally from either large funds or wealthy individuals willing to take on large risks in investing in smaller companies. In exchange, venture capitalists traditionally sought equity capital and some degree of control over company activities. Seeking venture capital could be a very dif cult and com- petitive process, as many small businesses were looking for investors at any given time and venture capitalists strove to invest in only the best investments available. Venture capital could often be more expensive than other forms of capital due to its higher risk, longer window of investment, and equity nature.3

Partnerships, Private Lenders, New Equity Partners

These were the more traditional forms of nancing available to most businesses. Com- panies could partner with other, similar companies to create synergies through cost ef ciency or business expansion. These partnerships could be mergers, acquisitions, or other strategic alliances. Private lenders were individual investors willing to offer a loan to the business. Equity partners were individual investors willing to offer capital in exchange for equity in the company. Each of these options, especially the latter two, had relatively high search costs, due to the dif culty in nding partners or investors that suit the busi- ness’s speci c needs.

Small Business Administration (SBA)

The Small Business Administration (SBA) offered a program which helped qualifying small businesses nd standardized loans from commercial lenders. Any for-pro t company, which met the SBA’s size standards, operated within the U.S., and demonstrated a need for a loan for sound business purposes (including working capital or xed asset invest- ments) quali ed. Loans for different purposes had different time frames and terms, but there were a few uniform provisions: they had a maximum rate tied to an SBA-approved base rate and a spread based on the length of the loan; they were guaranteed by the SBA up to a percentage depending on the size of the loan; loans needed to be secured with all available assets; and all loans included an SBA fee initially paid by the lender which could be passed along to the borrower at closing.4


  1. Barnett, Chance, “Top 10 Crowdfunding Sites for Fundraising,” Forbes, Retrieved 7/11/16 at http:// www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/.
  2. Barnett, Chance, “Top 10 Crowdfunding Sites for Fundraising,” Forbes, Retrieved 7/11/16 at http:// www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/.
  3. Small Business Administration website, “Starting and Managing Your Business.” http://www.sba. gov/content/venture-capital.
  4. Small Business Administration website, “Loans and Grants,” http://www.sba.gov/category/ navigation-structure/loans-grants/small-business-loans/sba-loan-programs/7a-loan-program.

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  1. Energy audit rms inspect homes and businesses and providing some easy energy conservation measures immediately, such as installing energy e cient lightbulbs, and suggesting building-speci c home improvements such as increasing insulation, that the home or building owner can implement.
  2. e Lean StartUp (2011) by Eric Ries discusses an entrepreneurial philoso- phy calling for frequent revisions and testing of a product, having metrics that accurately measure the success of the product, and pivoting, making changes to adapt to feedback from earlier versions.
  3. e Building Performance Institute’s credential shows that individuals have expertise house-as-a-system evaluation, diagnostics, and installation.
  4. Home improvement suggestions included adding insulation, replacing older, less e cient appliances, repairing leaks around attic fans and light xtures that allowed outside air to enter, and weather proo ng doors and windows.
  5. greeNEWit was certi ed as a BPI Building Analyst, LEED AP program, BPI Envelope Professional, Home Performance with ENERGY STAR® partner, and ResNet HERS rater. Many of the utility and governmental rebate programs specify what certi cations are needed to deliver services.
  6. Speci cally, growth of 4.8 percent was expected in 2013, 5.6 percent in 2014, 6.3 percent in 2015 and 5.2 percent in 2016.
  7. e “OUR” in the title stood for ownership, understanding, and responsibility concerning global energy resources.
  8. See www.aarrowsgnspinner.com for a video of sign spinning.


greeNEWit: Financing the Next Level 17

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