12 Understanding Rational Decision Making
Sales projections for Smartphone MBAestimate a subscriber base of 40,000 for the premier
installment.[2. What’s this 40,000 for the premier installment?]Subscription sales are
expected to quadruple to 160,000 within five years. [3. They say there are two million potential
subscribers out of this group, these three categories. And they have a goal of reaching an
initial subscription of 40,000 and 160,000 within five years. Okay. That’s understandable.]
The management’s five-year projections concerning Smartphone MBA’sprofits from
subscriptions and advertisements can be found in the attachments provided at the end of this
document.[4. Management’s projections? What the management of Smartphone MBA
projects? That’s what they’re talking about. Okay.]However, as is explained in the section
titled “Scenario Analysis,” no guarantees about these projections can be made.[5. Now where in
the heck’s the “Scenario Analysis”? See the way they’ve got this organized, they say
they’ll start off with the Scenario Analysis. But then they begin with editorial concepts.
Then they refer to the Scenario Analysis. Now you’ve got to go dig out the Scenario
Analysis.]
Seven interests in a limited partnership to be organized under the laws of the State of California
and to be known as Smartphone MBA Company (the “Partnership”) are being offered by Pallav
Srisuwanporn (the “General Partner”). Purchasers of such interests shall be referred to herein as
Limited Partners. The General Partner will contribute the concept and vision of the subscription
service. The entire capital of the Partnership will be contributed by the Limited Partners. [6. He
doesn’t have any risk in it. He has no risk at all.]The total profit-sharing interests in the
Partnership for the Limited Partners will be 15.05000%. The General Partner will reserve a
84.95000% profit-sharing interest in the Partnership.[7. That sounds extraordinarily high for
the General Partner. He doesn’t have anything at risk. All he has is an idea and he’s asking
the limited partners to take 85% of the risk. That’s outrageous! I mean this would have to
be a sure thing.]
The General Partner may raise additional capital by selling additional Limited Partnership
Interests in the Partnership up to a maximum amount, including the amount hereunder, of
$900,000 without the consent of any of the Limited Partners.[8. Oh, he’s only trying to raise
$900,000. It’s not that big a partnership, is it? It doesn’t require much capital.]The sale of
these Partnership Interests shall not dilute the Partnership Interests of the Limited Partners. [9. In
essence, what’s he doing? He has 85%. Okay, so he sells off interest in his 85% interest. It
doesn’t say anything about his background, does it? Oh, here’s the Scenario Analysis on
another page. Just let me jump around here a minute to see what we’ve got Educational
Concepts This thing isn’t put in the order it’s listed. When I read these things I like to
start off with the people involved. Is there anything in here about the background of the
guy who is going to be the General Partner? (The investor then finds the General Partner’s
résumé in an appendix.) Oh, here he is.]With the consent of Limited Partners holding as a
group a 50% Partnership Interest in the Partnership, the General Partner may raise capital in
excess of such amount by selling additional Limited Partnership Interests.[10. What the heck
does that mean? It says your Limited Partnerships start out with 15% of the partnership.
This is really poorly written.]
The purpose of the Partnership formation is to perform a test market advertisement campaign to
determine if starting Smartphone MBA makes economic sense.For a subscription service, a
greater than 3% positive response to a test market campaign is generally necessary before going
to the next phase. If the response to the test marketing falls below this percentage, the plans for
the service will be terminated and no remuneration to the Limited Partners will be provided. If the
response is greater than 3%, the next step will be full-scale production of the educational
modules. To start full-scale production will require the rental of office space, the recruitment of
qualified educators, technical staff, and advertisement salespeople, the acquisition of office
equipment, the selling of advertising space, the creation of relations with vendors,[11. Etcetera,
etcetera.]and the raising of additional capital (see the section entitled “Phase One”). Purchase of
servers and other equipment necessary to establish an online presence will be delayed until Phase