Phillip Lamport Brian O’Dwyer Felipe Ospina Scott Starr

1. Phillip Lamport Brian O’Dwyer Felipe Ospina Scott Starr February 24th, 2005

2. Agenda • Case Objectives • Background • Financing Options • Valuation of optimal financing scenario • Q&A

3. Case 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

4. Background - 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

5. Background - Satellite Internet Technology

6. Background - Axesat • Founded 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 penetration • Technological ability to offer service in any region • Bill customers in US$

7. Background - Axesat • Service coverage area

8. Background - Axesat • Services 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

9. Financial 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?

10. Potential Financing Alternatives 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.

11. Financing Recommendation  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 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).

12. Valuation • 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

13. Q&A