1

WACC
Good Capital and Better world books ( A )
A Better World For investing

Investment and portfolio

analysis

GOOD CAPITAL AND BETTER WORLD BOOKS (A):

A Better World for Investing
Better World Company:
Better World Books (BWB) was founded in 2002 by three Graduates, they wanted to start a book
drive on Notre Dame Campus for used text books it was the successful project for them then they
want to expand more and present this idea in a competition. David Murphy who was the judge of
this competition so impressed by this idea and in August 2004 Murphy became the president and
CEO of Better World Books. The company collected old and new books from individuals,
booksellers, recyclers, libraries and colleges. Apart from donations, libraries and colleges also sold
old books to BWB. BWB either donated the collected books to the organizations promoting literacy
or sold them online. The books that did not sell were recycled and had saved 10 million pounds of
books from landfills and had 680,000 pounds of metal shelving from libraries andcreated new
opportunities. BWB also had a Carbon Neutral Shopping Cart, through which, the company
collected two to five cents on the cost of each book from every customer at the Checkout link on its
website. The collected money was used to buy carbon offset to compensate the environmental
impact of shipping by the company and its literacy partners
Issues:
The donations of Better world Book was decline, decreasing from 15 percent in 2005 to 10
percent in 2006 and further to 7% in 2007.
The company had grown organically but now it was ready to take on external growth capital
from the right investment partner.
BWB literacy was giving away too much money to and not reserving enough to reinvest in
the companys growth
Major issue of the company is that good capital wants to take an external growth capital
from the right investment partner while considering the business model and social mission
of Good Cap and better world have the slow growth in 2006, 2007 as compare to 2005.

Analysis:
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 The company had grown organically but now it was ready to take on external growth capital
from the right investment partner.
Good Capital:
Good Capital is a company which was founded in 2006 by Calvert Group Strategists
Timothy Freundlich, social enterprise consultant Joy Anderson, and Silicon Valley serial
entrepreneur Kevin Jones to invest expansion capital in for- profit and nonprofit social
entrepreneur. This company invests in Social Enterprise Expansion fund (SEEF) to balance the
inequities in the U.S also around the world by creating innovative and self-sustaining solution to
the root causes. This company was providing the job opportunities for at risk youth, helping
developing world formers became the self-sufficient improving access to health care for low
income families, and supporting literacy and education efforts across the world. The business
model of Good cap is that they want to reduce the poverty level in the world and wants to show
a positive impact on society. Good Capital represents an evolution in thinking with regard to
investment and returns. By investing in both for-profit and not-for-profit social enterprise, Good
Cap maintains the flexibility to fund the best of a growing number of organizations pursuing
meaningful social and financial value. Good cap made partnership with those partners who
invest and donate in their company for positive social change like (reducing poverty and
increasing educational quality) not entirely for profit. Founder of this company wants to start
new capital market. Everyone wants to invest in this company because the company had
grown day by day but company gave this assignment to find the best investment partner which
helps the company to improve their business model and also provide best return to the partners,
to Wes Selke, who joined the Good Cap as an investment analyst. After researching 100 a
company who was eager to invest in this company Wes Selke then narrows down this approach
and wants to take Decision. While taking decision and researching he met to a professor of
social entrepreneurship at Fuqua School which knows about Better world books success and
suggest to Wes Selke that it may be a good option for your company but when he approached to
this company there are some problems to select this company for investment partner. These
problems are discussed in the profile of Better World Company.
1. Better World Company:
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Better World Books (BWB) was founded in 2002 by three Graduates, they wanted to start a
book drive on Notre Dame Campus for used text books it was the successful project for them
then they want to expand more and present this idea in a competition. David Murphy who was
the judge of this competition so impressed by this idea and in August 2004 Murphy became the
president and CEO of Better World Books. The company collected old and new books from
individuals, booksellers, recyclers, libraries and colleges. Apart from donations, libraries and
colleges also sold old books to BWB. BWB either donated the collected books to the
organizations promoting literacy or sold them online. The books that did not sell were recycled
and had saved 10 million pounds of books from landfills and had 680,000 pounds of metal
shelving from libraries and created new opportunities. BWB also had a Carbon Neutral
Shopping Cart, through which, the company collected two to five cents on the cost of each book
from every customer at the Checkout link on its website. The collected money was used to buy
carbon offset to compensate the environmental impact of shipping by the company and its
literacy partners. BWB wants to reduce the literacy then according to the literacy funding
strategy it had four main partners who are also the social enterprises, wants to improve the
society (see exhibit 1).
Business model of this company is that it sold out their books through four divisions like
Campus Division, Library Division, Antiquarian ,rare books, and New books.
(See in exhibit 2) that Campus division gives approximately 55% of BWBs total revenue. This
company started their operations in Indiana and employed regional representatives who
provided student groups for running book drives there was no labor cost. Before sending to
warehouses BWB made a great effort towards screening of books.
In 2005 BWB began partnership with the libraries and commission were also paid to the
libraries for partnership and donating, there is a steady growth in this division like the size of
inventory had risen from 200000 books to 3.4 million books in 2007and it accounts for 45 % of
BWBs revenue which was less as compare to library division. Rare books are also sold by this
company which having the $11to $1000 price and new books also add in this channel and
provide 30 to 70 % off list price which was the competitive edge for this company upon other
online retailers and also provide carbon- neutral ,free shipping.
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Revenue model is similar to any other online retailer, they have low costs thank to very low
COGs (books are donated) and fixed costs no physical retail presence. The only real cost is
labor, marketing and distribution they provide free shipping.
In 2007 fortune 100 companies donated on average 0.86% of pretax profit annually, while
smaller companies donated 1.39%. Company was giving fixed margin to literacy partners while
earning profit or not, between 7.5 to 15 % but in the past few years BWB management began to
realize that they were not setting aside enough money to reinvest in the companys growth.
Actual percentage of donations was on the decline, falling from 15, 10, 7 respectively in 2005,
2006 and 200. This variability was confusing to BWBs partners and nonprofit literacy partners
are in trouble to plan their annual budget plan.
A concise online research has been made to understand the future trends of the books business.
The study of the market gives an opportunity to understand the gaps in the market demands and
the consumer perception. As per the requirements are understood, a business ground In 2007
fortune 100 companies donated on average 0.86% of pretax profit annually, while smaller
companies donated 1.39%. Work has been strategized for the company to with stand the future
demands for potential areas of business. The insights of the study were focused on the changing
reading behavior of the consumer. The current inclination of reading books is shifting form
paper based books to digital books and audio books. How a company has to change with the
market in order to survive and main its profits and what strategies would help Better World
Books to continue its growing revenue has been briefly discussed. Industry trends tell us that
there is more demand for used books online as compare to text books .so there is the growth

New Model:

While keeping existing model of the company there are some steps which should be taken
by the by the company to raise the donation growth which was declining year to year so that
Wes Selke make the decision to partnership with it for its company
BWB given the 20% to the libraries back as commission and 5% to literacy partner this profit
margin should be reduce so that company reinvest in the company
Company was not set aside a profit margin for reinvesting in this company so it should keep this
in existing model there is very low cost of labor which collecting the used books and earn very
low profit margin and there are very high effort required for screening the books so in new
model company must give the high commission to collectors of used books so that only high
quality books collected. This would decrease the screening effort and as well as cost. Eliminates
payments for low quality, unprofitable book sales. Room to Read, Books for Africa, and other
nonprofit literacy partners will file annual reports on gains in literacy at the end of year, which
will be used to make stock grant decisions and Sets a more consistent funding expectation for
nonprofit literacy partners so they can better plan their annual budgets.
In 2007 fortune 100 companies donated on average 0.86% of pretax profit annually, while
smaller companies donated 1.39%. So it should make the partnership with smaller companies
because they are giving more donations as compare to fortune 500.
Company is considering doing business mostly in US but it should introduce the business and
make partnership in most populated countries like India in which more poverty is exist.
Research shows that E-book reading increasing day by day so company should invest more in
online business because here the potential for growth is increasing.
Decision:
The company changes its business model then it can produce more growth and it is the more
profitable company as compare to other companies which are providing same kind of business.
This company has the competitive edge upon other competitor because it providing used books
on very less price and having a very low cost.
Exhibit 1:
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Books for Africa:

Books for Africa, is a simple name for an organization with a simple mission. BFA collects, sorts,
ships and distributes books to children in Africa. The goal: to end the book famine in Africa. Since
1988, Books for Africa has shipped more than 20 million books. These books are now on once
empty library shelves, in the classrooms of rural schools, and in the hands of children who have
never held a book before.
The National Center for Family Literacy:
The National Center for Family Literacys mission is to create a literate nation by leveraging
the power of the family. Through groundbreaking initiatives, the NCFL fuels life improvement for
the nations most disadvantaged children and parents. More than one million families throughout
the country have made positive educational and economic gains as a result of the NCFLs work,
which includes training more than 150,000 teachers and thousands of other volunteers.
Room to Read:
Room to Read has developed a holistic, multi-pronged approach to help children in the developing
world gain the lifelong gift of education. This approach includes building schools, establishing
bilingual libraries, publishing local language books, establishing computer labs, and funding longterm girls scholarships. Since its inception in 2000, Room to Read has impacted the lives of over
1.7 million children.
Exhibit 2:
% of profit in library and campus division:
Library Division
Accounted for % of Total 45%

Campus Division
55%

Revenue
Campuses
Active Libraries

120
815