Phillip Lamport

Brian O’Dwyer

Felipe Ospina

Scott Starr

February 24th, 2005

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108319 _MacrosAgenda

Case Objectives

Background

Financing Options

Valuation of optimal financing scenario

Q&A

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108319 _MacrosCase Objectives

Perspective of an investor/entrepreneur in an emerging market.

Risks of operating a technology start-up in Latin America

Evaluate financial implications of different capital structures

DCF valuation & discount rate calculation

Examine sensitivities to key CF drivers

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108319 _MacrosBackground - Broadband Market

1999 Latin America internet growth highest in the world Telecommunications deregulation & privatization Improved infrastructure Falling personal computer prices

Colombia prime for growth, high demand 4.2% computer; 6.5% internet penetration 3 million current users (total pop. ~46 million) Large, rugged, mountainous country 75% of population widely dispersed

Satellite internet ideal for Colombia

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108319 _MacrosBackground - Satellite Internet Technology

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108319 _MacrosBackground - AxesatFounded April 2003 after successful “pilot test” with major satellite operator

Privately held by Colombian entrepreneurs

Satellite internet provider serving Colombia and other Latin American & Caribbean countries

Early success in Colombia, driven by: Limited internet connectivity and low penetrationTechnological ability to offer service in any region

Bill customers in US$

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108319 _MacrosBackground - Axesat Service coverage area

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108319 _MacrosBackground - AxesatServices Offered

High speed internet connectivity» Small & medium businesses

» Large corporations

» Government & Education

» Residential

Data transmission» Financial institutions

» POS Terminals / ATMs

Voice over IP Web hosting and web management

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108319 _MacrosFinancial Situation As of December 2004:

1,100+ customers Revenue: ~ US$4.6 mm per year Expected cash flow before financing (2005): $560K

Antennas (US$1,500 each) are a major capital cost Customer can choose to buy or rent antenna

Financing antennas and working capital with bank debt 15.8% p.a., 18 month maturity, monthly principal payments

Equity owners want to value company under different capital structures

Key Question: How should Axesat finance its growth?

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108319 _MacrosPotential Financing Alternatives

ScenariosAntenna

Financing(1) Revenue/Growth Financing

1) Current Axesat

• Monthly revenue: $288• Commercial customer

growth: 45 per month

• Fund antenna purchase and working capital requirements with internal funds

2) Customer Buys Antenna

Customer(2)

• Monthly revenue: $188• Commercial customer

growth: 19 per month

• Fund working capital requirements with bank debt

3) Customer Rents Antenna

Axesat

• Monthly revenue: $288• Commercial customer

growth: 45 per month

• Fund antenna and working capital requirements with bank debt

Notes: (1) Customer antenna financing only applies to commercial customers; residential customer antennas continue to be financed by Axesat under all alternatives.(2) Customer antenna financing begins in November 2005 when own inventory of antennas is depleted.

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108319 _MacrosFinancing Recommendation

Notes: (1) NPV to equity includes the Net Present Value of cash flow to equity less December 31, 2004 net debt of $2.1 million and initial equity investment of $2.3 million.

(2) Cash flow after financing costs (interest and principal payments).

Discounted Cash Flows NPV to

Equity(1)

December 2007

Scenario 2005-7 Terminal Total Debt Cash Flow(2) Debt / Cash Flow

1) Current $1,681 $4,300 $1,582 $542 $1,559 0.3x

2) Customer Buys Antenna

2,003 4,927 2,531 1,792 1,787 1.0x

3) Customer Rents Antenna

2,402 6,485 4,488 3,708 2,352 1.6x

Option 2 provides a higher NPV than the status quo with reasonable debt levels for a small startup

Option 3 has the highest NPV but debt levels seem unrealistic

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108319 _MacrosValuation

DCF Valuation – (Comps Challenge)

Key Risks

Pricing & competition

Currency exposure in cost structure

Technology obsolescence

Results of valuation in optimal financing scenario

Payback period for investors

TV assumptions

Identified product flexibility real option

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108319 _Macros

Q&A