Entrepreneurship & Biz. strategy CC530 Professor. Taeyong Yang   May 30 – June 8, 2005
<ul><li>Resources include  </li></ul><ul><li>People: management team, board of directors, lawyers, accountants, and consul...
<ul><li>Using Other People’s Resources </li></ul><ul><li>-  Money  from friends, business associates, or other investors <...
<ul><li>Outside People Resources  </li></ul><ul><li>Board of Directors; </li></ul><ul><li>Attorneys;  </li></ul><ul><li>Ba...
<ul><li>Outside People Resources  </li></ul><ul><li>Board of Directors </li></ul><ul><ul><li>If the new venture is organiz...
<ul><li>Outside People Resources  </li></ul><ul><li>Board of Directors  (cont.) </li></ul><ul><ul><li>• Treat your directo...
Venture Financing: The Entrepreneur’s Achille’s Heel <ul><li>Three core principles:   </li></ul><ul><li>1) more cash is pr...
<ul><li>• What are the financial consequences and implications of crucial business decisions such as  pricing, volume, and...
 
Figure 18.1 Idealized cash flow diagram for a new enterprise Cumulative cash flow  ($millions) 0 Time (months) -1 -2 -3 3 ...
 
<ul><li>The startup stage (first two or three years) </li></ul><ul><li>-  Entrepreneurial talent of a lead entrepreneur an...
<ul><li>Entrepreneurial Finance: The Owner’s Perspective  </li></ul><ul><li>Cash flow and cash </li></ul><ul><li>Time and ...
<ul><li>Determining Capital Requirements </li></ul><ul><ul><li>How much money does my venture need?  </li></ul></ul><ul><u...
Table 17.1 Four steps to building a financial plan.   <ul><li>Assumptions about the starting value of cash and assets. </l...
Free Cash Flow: Burn Rate, OOC, and TTC  The expanded definition can be collapsed into a simpler one: Earnings  before int...
Free Cash Flow: Burn Rate, OOC, and TTC  Free cash flow =  Earnings before interest and taxes (EBIT) -  Tax exposure (tax ...
 
Figure 17.1   Assets generate income and liabilities lead to expenses. Net income is income minus expenses.
Figure 17.2 Calculation of the income statement.
Figure 17.3 Cash flow process.
Figure 17.4 Format for a balance sheet.
Table 18.1 Five factors that lead to the different perceptions of investors and entrepreneurs. <ul><li>Uncertainty of proj...
Table 18.2 Value of real option based on four factors <ul><li>Increases with the level of uncertainty measured by the stan...
Table 18.3 Sources of capital <ul><li>Leasing companies </li></ul><ul><li>Established companies </li></ul><ul><li>Public s...
 
<ul><li>Bootstrapping   </li></ul><ul><li>77% launched with $50K or less; 46% with $10K or less; 74% with personal savings...
Table 18.4 Advantages and disadvantages of bootstrap financing <ul><li>Unable to fund growth phase </li></ul><ul><li>Lack ...
Table 18.5 Criteria for angel investments <ul><li>Entrepreneurs with attractive personal characteristics such as integrity...
Table 18.6 Investment stages <ul><li>Seed or start-up  stage </li></ul><ul><li>Development  stage (Series A) </li></ul><ul...
Table 18.8 U.S. venture capital investments for 1995~2003
Table 18.9 Characteristics of an attractive venture capital investment <ul><li>Outstanding opportunity </li></ul><ul><li>F...
Table 18.10 Five steps for a venture capital ideal <ul><li>Determine the amount of cash needed and its use </li></ul><ul><...
Figure 18.4 Potential for the flow of funds to a new biz. firm Angels Friends  And families Venture  capital  firms <ul><l...
Table 18.11 Projected cash flow and profit for ABC Inc. 1,800 1,500 1,200 500 0 -1,100 Cash flow 1,200 1,000 650 400 -10 -...
Valuation of ABC Inc. <ul><li>CR = (1+G) N     I = M    I </li></ul><ul><li>At 45% annual expected return </li></ul><ul>...
Table 18.12 Netscape valuation at four stages $160.0 $28.00 8/96 IPO $18.0 $9.00 6/96 Series B $6.4 $2.25 7/94 Series A $3...
Table 18.13 Financial stages of EZY Inc. 34.0% 60.0% 100% Ownership by FFF 66.0% $0.50 Venture capital group Series B 40.0...
Table 18.14 Venture capital financing of FedEx $6.00 - 1978 IPO $0.63 $3.88 9/1974 Series B $7.34 $6.40 3/1974 Series A - ...
Table 18.15 Issues to be resolved within the terms of the deal <ul><li>Type of security </li></ul><ul><li>Reservation of o...
Table 18.16 Advantages and disadvantages of issuing an IPO <ul><li>Offering costs and effort required </li></ul><ul><li>Di...
Table 18.17 IPO offerings for selected years in the US 36.3 56.1 16.3 17.7 3.1 0.3 1.1 Total proceeds ($billions) 111 864 ...
<ul><li>Rich Dad and Poor Dad </li></ul>
 
 
가난한 사람의 현금흐름 중산층의  현금흐름
Poor person Rich person
 
 
 
 
 
 
<ul><li>Yahoo! 1995:  </li></ul><ul><li>First Round Financing </li></ul>
<ul><li>“ I guess, three and a half years ago, if we were looking to start a business and make a lot of money, we wouldn’t...
<ul><li>Michael Moritz: Right now, the biggest risk that you guys run is not making a decision, because if you don’t someo...
<ul><li>Mosaic and the WWW:  </li></ul><ul><ul><li>In 1993, U of IL, UC introduced Mosaic.  </li></ul></ul><ul><ul><li>Eas...
<ul><li>Yahoo!: “Yet Another Hierarchical Officious Oracle”  Growing Popularity </li></ul><ul><ul><li>Spread by word of mo...
<ul><li>Potential Competing Services   </li></ul><ul><ul><li>Architext (Stanford; renamed Excite) </li></ul></ul><ul><ul><...
<ul><li>Uniqueness and genius  </li></ul><ul><ul><li>A guide with human discretion and judgment built into it. </li></ul><...
<ul><li>Leaving Stanford and Starting the Business </li></ul><ul><ul><li>Yang and Filo had been in Silicon Valley long eno...
<ul><li>Search for Funding  </li></ul><ul><ul><li>Reuters (John Taysom, VP Marketing)  </li></ul></ul><ul><ul><ul><li>Sinc...
<ul><li>Corporate Partnerships:  </li></ul><ul><li>AOL, Prodigy, Compuserve </li></ul><ul><ul><li>If Yahoo! did not partne...
<ul><li>Sequoia Capital, Michael Moritz  </li></ul><ul><ul><li>Journalistic background </li></ul></ul><ul><ul><li>His cont...
<ul><li>The Decision </li></ul><ul><li>Sequoia’s Offer </li></ul><ul><ul><li>Giving up too much; need money desperately; i...
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  1. 1. Entrepreneurship & Biz. strategy CC530 Professor. Taeyong Yang May 30 – June 8, 2005
  2. 2. <ul><li>Resources include </li></ul><ul><li>People: management team, board of directors, lawyers, accountants, and consultants; </li></ul><ul><li>Financial resources; </li></ul><ul><li>Assets: plant and equipment; and </li></ul><ul><li>Business plan. </li></ul><ul><li>The successful entrepreneurs seek to control the resources instead of owning them. </li></ul><ul><li>- Need less capital (no dilution of the founder’s equity) </li></ul><ul><li>- Flexibility (commit and decommit quickly) </li></ul><ul><li>- Low sunk cost (easier to abort the venture) </li></ul><ul><li>- Lower fixed costs (favorable for breakeven) </li></ul><ul><li>- Reduced risk (less obsolescence) </li></ul><ul><li>Bootstrapping – Minimizing resources </li></ul>
  3. 3. <ul><li>Using Other People’s Resources </li></ul><ul><li>- Money from friends, business associates, or other investors </li></ul><ul><li>People, space, equipment, or material loaned , provided inexpensively or free by customers or suppliers, or secured by bartering future services, opportunities </li></ul><ul><li>In fact, using other people’s resources: free booklets and pamphlets (published by the Big Six accounting firms), or low-cost educational programs (government­funded management assistance programs) </li></ul><ul><li>An example of this approach is a company that grew to $20 million in sales in about 10 years with $7,500 cash, a liberal use of credit cards, reduced income for the founders, and hard work and long hours. This company has not had to raise any additional equity capital. </li></ul>
  4. 4. <ul><li>Outside People Resources </li></ul><ul><li>Board of Directors; </li></ul><ul><li>Attorneys; </li></ul><ul><li>Bankers and Other Lenders; </li></ul><ul><li>Accountants; </li></ul><ul><li>Consultants; </li></ul>
  5. 5. <ul><li>Outside People Resources </li></ul><ul><li>Board of Directors </li></ul><ul><ul><li>If the new venture is organized as a corporation, it must have a board </li></ul></ul><ul><ul><li>of directors, which must be elected by the shareholders. </li></ul></ul><ul><li>Entrepreneurs worry about the wrong thing... that the boards are going to steal their companies or take them over. Though entrepreneurs have many reasons to worry, that’s not one of them. It almost never happens. In truth, boards don’t even have much power. They are less well equipped to police entrepreneurs than to advise them. </li></ul><ul><li>A top-notch outside director usually spends at least 9 to 10 days per year on his or her responsibilities. </li></ul><ul><li>Fees can range from as little as $500—$ 1,000 for a half- or full-day meeting to $10,000—$30,000 per year for four to six full-day to day-and-a-half meetings, plus accessibility on a continuous basis. </li></ul><ul><li>Stock in a startup company, often 2 percent to 5 percent, or options, for 5,000 to 50,000 shares, are common incentives to attract and reward directors. </li></ul>
  6. 6. <ul><li>Outside People Resources </li></ul><ul><li>Board of Directors (cont.) </li></ul><ul><ul><li>• Treat your directors as individual resources. </li></ul></ul><ul><ul><li>• Always be honest with your directors. </li></ul></ul><ul><ul><li>• Set up a compensation committee. </li></ul></ul><ul><ul><li>• Set up an audit committee. </li></ul></ul><ul><ul><li>• Never set up an executive committee. </li></ul></ul><ul><ul><li>* Liability - personally liable for its actions and those of its officers, and, worse, a climate of litigation exists in many areas </li></ul></ul><ul><ul><li>* Harassment – from unsatisfied outside stockholders </li></ul></ul><ul><ul><li>* Time and risk – more time and intense involvement at an early- stage </li></ul></ul>
  7. 7. Venture Financing: The Entrepreneur’s Achille’s Heel <ul><li>Three core principles: </li></ul><ul><li>1) more cash is preferred to less cash, </li></ul><ul><li>2) cash sooner is preferred to cash later </li></ul><ul><li>3) less risky cash is preferred to more risky cash. </li></ul>
  8. 8. <ul><li>• What are the financial consequences and implications of crucial business decisions such as pricing, volume, and policy changes affecting the balance sheet ? How will these change over time? </li></ul><ul><li>• How can we measure and monitor changes in our financial strategy and structure from a management, not just a GAAP, perspective? </li></ul><ul><li>• What does it mean to grow too fast in our industry? How fast can we grow without requiring outside debt or equity? How much capital is required if we increase or decrease our growth by X percent ? </li></ul><ul><li>• What will happen to our cash flow, profitability, return on assets, and shareholder equity if we grow faster or slower by X percent? </li></ul><ul><li>• How much capital will this require ? How much can be financed internally and how much will have to come from external sources? What is a reasonable mix of debt and equity? </li></ul><ul><li>• What if we are 20% less profitable than our plan calls for ? </li></ul><ul><li>• What should be our focus and priorities? What are the cash flow and net income break-even points for each of our product lines? For our company? For our business unit? </li></ul><ul><li>• What about our pricing, our volume, and costs? How sensitive is our cash flow and net income to increases or decreases in price, variable costs, or volume? What price/volume mix will enable us to achieve the same cash flow and net income? </li></ul><ul><li>• How will these changes in pricing, costs and volume affect our key financial ratios and how will we stack up against others in our industry? How will our lenders view this? </li></ul><ul><li>• At each stage—startup, rapidly growing, stagnating, or mature company—how should we be thinking about these questions and issues? </li></ul>
  9. 10. Figure 18.1 Idealized cash flow diagram for a new enterprise Cumulative cash flow ($millions) 0 Time (months) -1 -2 -3 3 2 1 10 20 30 40 50 Cash breakeven
  10. 12. <ul><li>The startup stage (first two or three years) </li></ul><ul><li>- Entrepreneurial talent of a lead entrepreneur and a key team member or two. </li></ul><ul><li>- Critical mass of people, market and financial results, and competitive resiliency are established. </li></ul><ul><li>- Sales typically range between $2M and $20M. </li></ul><ul><li>The high growth stage </li></ul><ul><li>- Entrepreneur finds it is necessary to let go of power and control. </li></ul><ul><li>Managing for Rapid Growth </li></ul><ul><li>- require close collaboration of a manager with other people than his or her subordinates </li></ul><ul><li>- adept at conflict resolution (e.g., influence without formal power) </li></ul><ul><li>- hero making (to make the pie bigger and better) </li></ul>
  11. 13. <ul><li>Entrepreneurial Finance: The Owner’s Perspective </li></ul><ul><li>Cash flow and cash </li></ul><ul><li>Time and timing </li></ul><ul><li>Capital markets </li></ul><ul><li>Emphasis </li></ul><ul><li>Strategies for raising capital </li></ul><ul><li>Downside consequences </li></ul><ul><li>Risk/reward relationships </li></ul><ul><li>Valuation methods </li></ul><ul><li>Conventional financial ratios </li></ul><ul><li>Goals </li></ul>
  12. 14. <ul><li>Determining Capital Requirements </li></ul><ul><ul><li>How much money does my venture need? </li></ul></ul><ul><ul><li>When is it needed? </li></ul></ul><ul><ul><li>How long will it last? </li></ul></ul><ul><ul><li>Where and from whom can it be raised? </li></ul></ul><ul><ul><li>How should this process be orchestrated and managed? </li></ul></ul><ul><li>These are vital questions to any entrepreneur at any stage in the development of a company. </li></ul>
  13. 15. Table 17.1 Four steps to building a financial plan. <ul><li>Assumptions about the starting value of cash and assets. </li></ul><ul><li>Calculated based on the income and cash flows from step 3. </li></ul>3. Income and cash flow forecast <ul><li>Assumption about the costs of doing business in the specified time frame. </li></ul><ul><li>Calculation of the costs associated with the projected sales of step 1. </li></ul><ul><li>Assumption about the timing of cash receivables and payables specified in the time frame. </li></ul><ul><li>Calculation of the income and cash flow associated with the projected sales and costs on a monthly basis over the timeframe. </li></ul>4. Balance sheet 2. Costs forecast <ul><li>Timeframe-two or three years. </li></ul><ul><li>Assumption about sales per customer, number of customers, and growth rate of sales. </li></ul><ul><li>Calculation of the sales forecast. </li></ul>1. Sales forecast
  14. 16. Free Cash Flow: Burn Rate, OOC, and TTC The expanded definition can be collapsed into a simpler one: Earnings before interest but after taxes (EBIAT) - Increase in net total operating capital (FA + WC) where the increase in net total operating capital is defined as: Increase in operating working capital (WC) + Increase in net fixed assets (FA)
  15. 17. Free Cash Flow: Burn Rate, OOC, and TTC Free cash flow = Earnings before interest and taxes (EBIT) - Tax exposure (tax rate times EBIT) + Depreciation and other noncash charges - Increase in operating working capital - Capital expenditures Operating working capital = Transactions cash balances + Accounts receivable + Inventory + Other operating current assets (e.g., prepaid expenses) - Accounts payable - Taxes payable - Other operating current liabilities (e.g., accrued expenses)
  16. 19. Figure 17.1 Assets generate income and liabilities lead to expenses. Net income is income minus expenses.
  17. 20. Figure 17.2 Calculation of the income statement.
  18. 21. Figure 17.3 Cash flow process.
  19. 22. Figure 17.4 Format for a balance sheet.
  20. 23. Table 18.1 Five factors that lead to the different perceptions of investors and entrepreneurs. <ul><li>Uncertainty of projected outcomes </li></ul><ul><li>Asymmetric information </li></ul><ul><li>Assigning a value to intellectual property and intangibles </li></ul><ul><li>Dynamics of the industry and the financial marketplace </li></ul><ul><li>Concentration of wealth in a venture by entrepreneurs while investors will have a diversified portfolio </li></ul>
  21. 24. Table 18.2 Value of real option based on four factors <ul><li>Increases with the level of uncertainty measured by the standard deviation </li></ul><ul><li>Increases with the length of time the person holding the option has to decide whether or not to exercise it </li></ul><ul><li>Increases with the ratio of the current stock price to the exercise price. The ratio is P/X. </li></ul><ul><li>Increases with the discount rate </li></ul>
  22. 25. Table 18.3 Sources of capital <ul><li>Leasing companies </li></ul><ul><li>Established companies </li></ul><ul><li>Public stock offering </li></ul><ul><li>Government grants and credits </li></ul><ul><li>Customer prepayments </li></ul><ul><li>Pension funds </li></ul><ul><li>Insurance companies </li></ul><ul><li>Founders </li></ul><ul><li>Family and friends </li></ul><ul><li>Small biz. Investment companies </li></ul><ul><li>Small Biz. Innovation Research grants </li></ul><ul><li>Wealthy individuals (angels) </li></ul><ul><li>Venture capitalists </li></ul><ul><li>Banks </li></ul>
  23. 27. <ul><li>Bootstrapping </li></ul><ul><li>77% launched with $50K or less; 46% with $10K or less; 74% with personal savings </li></ul><ul><li>1. Start small and probe the market </li></ul><ul><li>2. Learn from your customer and adjust the biz model </li></ul><ul><li>3. Adjust the revenue and profit engine </li></ul><ul><li>4. Keep cost to a minimum </li></ul><ul><li>5. start expanding the company </li></ul><ul><li>e.g., Estee Lauder ($100 in 1930; $3B in 99; $6.945B in 2003; </li></ul><ul><li>$9.47B on 10/5/04) </li></ul><ul><li>Walt Disney Co. ($290 in 1923; $16B in 99; $37.396B in 2003 </li></ul><ul><li>$49.06B on 10/5/04) </li></ul><ul><li>AuctionWeb -> eBay (p395) </li></ul>
  24. 28. Table 18.4 Advantages and disadvantages of bootstrap financing <ul><li>Unable to fund growth phase </li></ul><ul><li>Lack of funding commitment for future </li></ul><ul><li>Loss of advice from professional investors </li></ul><ul><li>Low pressure on valuation </li></ul><ul><li>Easy terms on ownership </li></ul><ul><li>Control by founders </li></ul><ul><li>Little time spent on finding investors </li></ul>
  25. 29. Table 18.5 Criteria for angel investments <ul><li>Entrepreneurs with attractive personal characteristics such as integrity and coachability </li></ul><ul><li>Good market and growth potential </li></ul><ul><li>Seeking an investment of $100K~1M that offers minority ownership of about 40% </li></ul><ul><li>Within the industry in which the angel has experience </li></ul><ul><li>Located within a few hours’ driving distance of the angel </li></ul><ul><li>Recommended by trusted biz. associates </li></ul>
  26. 30. Table 18.6 Investment stages <ul><li>Seed or start-up stage </li></ul><ul><li>Development stage (Series A) </li></ul><ul><li>Growth stage (Series B or C, and others as required) </li></ul><ul><li>Competitive or maturity stage (Initial public offering) </li></ul>
  27. 31. Table 18.8 U.S. venture capital investments for 1995~2003
  28. 32. Table 18.9 Characteristics of an attractive venture capital investment <ul><li>Outstanding opportunity </li></ul><ul><li>Founders’ capital invested in the venture </li></ul><ul><li>Recognizes competitors and has a solid competitive strategy </li></ul><ul><li>A sound BP showing how cash flow turns positive within a few years </li></ul><ul><li>Demonstrated progress on the product design and good sales potential </li></ul><ul><li>Potential to become a leading firm in a high-growth industry with few competitors </li></ul><ul><li>Highly competent and committed management team and high human capital (Talent) </li></ul><ul><li>Strong competitive abilities and a sustainable competitive advantage </li></ul><ul><li>Viable exit or harvest strategy </li></ul><ul><li>Reasonable valuation of the new venture </li></ul>
  29. 33. Table 18.10 Five steps for a venture capital ideal <ul><li>Determine the amount of cash needed and its use </li></ul><ul><li>Locate appropriate venture capital investors and secure a referral to them </li></ul><ul><li>Determine which risks are to be reduced in this financing round </li></ul><ul><li>Team risk – people </li></ul><ul><li>Capital risk – finance </li></ul><ul><li>Technology risk – innovation </li></ul><ul><li>Market risk – industry and competitors </li></ul><ul><li>4. Agree on valuation and ownership structure </li></ul><ul><li>5. Agree on a contract (term sheet) describing the deal and its terms </li></ul>
  30. 34. Figure 18.4 Potential for the flow of funds to a new biz. firm Angels Friends And families Venture capital firms <ul><li>Investment </li></ul><ul><li>Banks </li></ul><ul><li>IPO </li></ul><ul><li>Private </li></ul><ul><li>placement </li></ul>New Biz. firm <ul><li>pension funds </li></ul><ul><li>private investors </li></ul><ul><li>Corporations </li></ul>Flow of funds IPO Private placement Seed funds Series A,B,C Seed or series A
  31. 35. Table 18.11 Projected cash flow and profit for ABC Inc. 1,800 1,500 1,200 500 0 -1,100 Cash flow 1,200 1,000 650 400 -10 -600 Profit 10,000 8,000 5,000 2,500 1,000 0 Sales 6 5 4 3 2 1 year
  32. 36. Valuation of ABC Inc. <ul><li>CR = (1+G) N  I = M  I </li></ul><ul><li>At 45% annual expected return </li></ul><ul><ul><li>M = (1 + 0.45) 5 = 6.41 </li></ul></ul><ul><ul><li>CR = M  I = 6.41  1.1 = 7.05 </li></ul></ul><ul><li>PO = CR / MV  100% </li></ul><ul><li>MV = PE  EN </li></ul><ul><ul><li>Expecting growth rate of earnings of 20% for several years, then PE  16 </li></ul></ul><ul><ul><li>EN at year 5: $1M </li></ul></ul><ul><ul><li>MV = 16  $1M = $16M </li></ul></ul><ul><li>PO = CR / MV  100% = 7.05/16  100% = 44.0% </li></ul>
  33. 37. Table 18.12 Netscape valuation at four stages $160.0 $28.00 8/96 IPO $18.0 $9.00 6/96 Series B $6.4 $2.25 7/94 Series A $3.1 $0.75 4/94 Seed New investment ($millions) Price per share Date Stage
  34. 38. Table 18.13 Financial stages of EZY Inc. 34.0% 60.0% 100% Ownership by FFF 66.0% $0.50 Venture capital group Series B 40.0% $0.90 Venture capital group Series A - $0.10 FFF Seed Ownership by venture capitalists Price per share Investors Stage
  35. 39. Table 18.14 Venture capital financing of FedEx $6.00 - 1978 IPO $0.63 $3.88 9/1974 Series B $7.34 $6.40 3/1974 Series A - $12.25 9/1973 Seed share price ($ per share) investment ($millions) Date Stage
  36. 40. Table 18.15 Issues to be resolved within the terms of the deal <ul><li>Type of security </li></ul><ul><li>Reservation of ownership for employees (stock option pool) </li></ul><ul><li>Antidilution provisions </li></ul><ul><li>Milestones of achievement, if there are multiple stages or steps to the investment </li></ul><ul><li>Stock option plans </li></ul><ul><li>Percent ownership for the investor group </li></ul><ul><li>Timing of investment </li></ul><ul><li>Control exerted by investor </li></ul><ul><li>Vesting periods for ownership by the entrepreneur team </li></ul><ul><li>Rights to require an IPO and registration rights </li></ul>
  37. 41. Table 18.16 Advantages and disadvantages of issuing an IPO <ul><li>Offering costs and effort required </li></ul><ul><li>Disclosure requirements and scrutiny of operations </li></ul><ul><li>Perceived pressures to achieve short-term results </li></ul><ul><li>Possible loss of control to a majority shareholders </li></ul><ul><li>Raising new capital with the possibility of later, additional offerings </li></ul><ul><li>Liquidity : Ability to convert ownership to cash, potential of harvest for investors and founders </li></ul><ul><li>Visibility : Build brand and reputation </li></ul>Advantages disadvantages
  38. 42. Table 18.17 IPO offerings for selected years in the US 36.3 56.1 16.3 17.7 3.1 0.3 1.1 Total proceeds ($billions) 111 864 365 693 347 40 253 Number of issues 2001 1996 1991 1986 1981 1976 1971 year
  39. 43. <ul><li>Rich Dad and Poor Dad </li></ul>
  40. 46. 가난한 사람의 현금흐름 중산층의 현금흐름
  41. 47. Poor person Rich person
  42. 54. <ul><li>Yahoo! 1995: </li></ul><ul><li>First Round Financing </li></ul>
  43. 55. <ul><li>“ I guess, three and a half years ago, if we were looking to start a business and make a lot of money, we wouldn’t have done this.” </li></ul><ul><li>- Jerry Yang, 1997 </li></ul><ul><li>David Filo </li></ul><ul><ul><li>Tulane, CE (class of 1988); Stanford, EE; Yang’s TA </li></ul></ul><ul><li>Jerry Yang </li></ul><ul><ul><li>Stanford (class of 1990); PhD candidate </li></ul></ul>
  44. 56. <ul><li>Michael Moritz: Right now, the biggest risk that you guys run is not making a decision, because if you don’t someone else is going to run you over. </li></ul><ul><li>Sequoia – Cisco, Oracle and Apple </li></ul><ul><li>Yahoo! – hierarchically organized list of links to sites on the World Wide Web. </li></ul><ul><li>Jerry Yang </li></ul><ul><ul><li>“ NOT just a directory but a media property” </li></ul></ul><ul><ul><li>“ Primarily we’re a brand. ····· The focus of the business deals we are doing right now is not on revenues but on our brand” </li></ul></ul>
  45. 57. <ul><li>Mosaic and the WWW: </li></ul><ul><ul><li>In 1993, U of IL, UC introduced Mosaic. </li></ul></ul><ul><ul><li>Easy to use browser for navigating the Internet. </li></ul></ul><ul><ul><li>Estimated to have 2M users worldwide in just over one year. </li></ul></ul><ul><li>Jerry’s Guide to the WWW: </li></ul><ul><ul><li>Filo and Yang’s bookmarks grew large and unwieldy. </li></ul></ul><ul><ul><li>Earliest versions of Mosaic were unable to sort bookmarks in any convenient manner. </li></ul></ul><ul><ul><li>Filo and Yang wrote software that allowed them to group their bookmarks into subject areas. They tried to visit and categorize at least 1,000 sites a day. Subject category; sub; subsub… </li></ul></ul><ul><ul><li>The hierarchy made it easy for even novices to find websites quickly. </li></ul></ul><ul><ul><li>Filo: “No technology could beat human filtering.” – labor intensive. </li></ul></ul>
  46. 58. <ul><li>Yahoo!: “Yet Another Hierarchical Officious Oracle” Growing Popularity </li></ul><ul><ul><li>Spread by word of mouth and e-mail. </li></ul></ul><ul><ul><li>Yahoo!’s network resource requirements increased exponentially. </li></ul></ul><ul><ul><li>Stanford provided them with sufficient bandwidth to the Internet, but bottlenecks came from limitations in the number of TCP/IP connections. </li></ul></ul><ul><ul><li>Time required to maintain the site was unmanageable </li></ul></ul><ul><ul><li>Classes and research fell behind. </li></ul></ul>
  47. 59. <ul><li>Potential Competing Services </li></ul><ul><ul><li>Architext (Stanford; renamed Excite) </li></ul></ul><ul><ul><li>Webcrawler (U of Washington) </li></ul></ul><ul><ul><li>Lycos (Carnegie Mellon) </li></ul></ul><ul><ul><li>The WWW Worm </li></ul></ul><ul><ul><li>Inforseek </li></ul></ul><ul><ul><li>AOL and Microsoft in 1995 represented larger competitors who could enter the market either by building their own or acquiring one of the other startups. </li></ul></ul>
  48. 60. <ul><li>Uniqueness and genius </li></ul><ul><ul><li>A guide with human discretion and judgment built into it. </li></ul></ul><ul><ul><li>The sites that they link to are deliberately chose. </li></ul></ul><ul><ul><li>Yahoo! Is able to build intuitive paths that might be singularly, or even temporarily important to the people seeking it. </li></ul></ul>
  49. 61. <ul><li>Leaving Stanford and Starting the Business </li></ul><ul><ul><li>Yang and Filo had been in Silicon Valley long enough to realize that what they really wanted to do was to start their own business. </li></ul></ul><ul><ul><li>The number of hits jumped from thousands to hundreds of thousands daily. By fall of 1994, the two received over 2M hits a day on their site. </li></ul></ul><ul><ul><li>Their Ph.D. adviser Giovanni De Micheli told them to move their hobby off campus. </li></ul></ul><ul><ul><li>Abandoning their academic careers. </li></ul></ul><ul><ul><li>Three main potential options to explore: 1) sell Yahoo!; 2) partner with a corporate sponsor; 3) start an independent business using VC financing. </li></ul></ul>
  50. 62. <ul><li>Search for Funding </li></ul><ul><ul><li>Reuters (John Taysom, VP Marketing) </li></ul></ul><ul><ul><ul><li>Since Yahoo! did not generate revenues, it was in a poor negotiating position; talks progressed very slowly. </li></ul></ul></ul><ul><ul><li>ISN (Randy Adams, founder, the first online retailer in the world) </li></ul></ul><ul><ul><li>Netscape (Jim Clark and Marc Andressen) </li></ul></ul><ul><ul><ul><li>By early 1995, Yahoo! was running on four Netscape workstations. </li></ul></ul></ul><ul><ul><ul><li>Netscape offered to purchase Yahoo! outright. </li></ul></ul></ul><ul><ul><ul><li>The offer was a potentially lucrative one. </li></ul></ul></ul><ul><ul><ul><li>Netscape’s company culture was more in tune with what the two were looking for. </li></ul></ul></ul>
  51. 63. <ul><li>Corporate Partnerships: </li></ul><ul><li>AOL, Prodigy, Compuserve </li></ul><ul><ul><li>If Yahoo! did not partner with them, as large players they could develop their own competing services that would cause Yahoo! to fail. </li></ul></ul><ul><ul><li>Disadv 1: Yahoo started as a grass-roots effort, free of commercialization. </li></ul></ul><ul><ul><li>Disdav 2: The lack of control that the two founders would have over their creation. </li></ul></ul><ul><ul><li>Jerry and Dave were worried that selling to AOL would have most likely killed Yahoo in the end. </li></ul></ul>
  52. 64. <ul><li>Sequoia Capital, Michael Moritz </li></ul><ul><ul><li>Journalistic background </li></ul></ul><ul><ul><li>His contacts with publications and knowledge about how to manage context. </li></ul></ul><ul><ul><li>The total MC for Sequoia backed companies exceeded that of any other VC firm. </li></ul></ul><ul><ul><li>Modus operandi: funding successful companies using only a small amount of capital. </li></ul></ul><ul><ul><li>Offer: $1M investment for 25% share of the company. </li></ul></ul><ul><ul><li>Only 24 hours to accept the deal. </li></ul></ul>
  53. 65. <ul><li>The Decision </li></ul><ul><li>Sequoia’s Offer </li></ul><ul><ul><li>Giving up too much; need money desperately; invaluable resources at Sequoia </li></ul></ul><ul><li>Corporate Sponsorship </li></ul><ul><ul><li>Get the funding with retaining 100% ownership </li></ul></ul><ul><ul><li>Tainting Yahoo’s image (non-commercial free site) </li></ul></ul><ul><li>M&A </li></ul><ul><ul><li>A lot of money; but have to give up primary control </li></ul></ul><ul><li>Look for better terms with another VC firm </li></ul>

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