RentWise

The case profiles the start-up and financing of RentWise, a national chain of Rent-to-Own stores. Doug Wells graduated from the Stanford Graduate School of Business in 1995 and started a search fund to identify business opportunities in an industry characterized by recurring revenue streams and low risks of technical obsolescence. After a two year search, Doug identified the rent-to-own industry as ripe for opportunity. He decided that instead of acquire and operate a company, he should start his own chain. His investors agree to invest $15M total, but staged over the two years and pegged to a few milestones, one of which was securing commercial debt. The case describes Doug’s parallel efforts to begin operations and find a senior lender. Doug chooses to use a debt broker to find debt in the summer of 1998, but because RentWise has no operating record, no bank is willing to underwrite the company. After six months of operations, Doug decides to look for debt again, choosing Jeanne Montague, a more experienced investment advisor to help solicit and negotiate with banks. The case focuses in on RentWise’s negotiations with Shore Bank and surfaces a number of key issues. First, Doug wrestles with how much to disclose to the bank during the negotiations about a personnel issue. RentWise’s COO (an experienced industry veteran) is no longer performing, and Doug debates how and when to tell the bank that he has been demoted. Second, Doug is frustrated with the bank officer’s trustworthiness and is not sure how—or even if—to proceed with the negotiations. Finally, the specifics of the deal focus on how to value the inventory of RentWise’s stores, and students are asked to consider how to proceed with the negotiations of this unusual deal. Teaching Note available.