NETSCAPE_CASE_521_2011

NETSCAPE_CASE_521_2011 - 1 Netscape’s Initial Public...

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Unformatted text preview: 1 Netscape’s Initial Public Offering HBS Case Study 2 Netscape’s Business Model & Risks • What is Netscape’s line of business? Have developed user-friendly web browser • Why investors potentially excited? Investors excited because of new technology (user-friendly web browser) – perhaps next Microsoft • What is Netscape’s business model? Do they sell the browser? Strategy: Give away & then make them pay by later selling server software to companies! 3 Challenges for Netscape • Who are the potential competitors? Microsoft, Spyglass, AOL • What are the major risks of Netscape faces? Uncertainty over growth in internet, revenue from browser market, and who will be main competitors (i.e., what will MSFT and AOL do) 4 Sources of Past Capital • Clark - $4.1M (3 initially plus an additional 1.1) • Kleiner Perkins - $5M • Adobe and five other media companies - $18M 5 Ownership Structure • Clark 24% ($4M investment) • Kleiner Perkins 11% ($5M investment) • Media Companies 11% ($18M investment) • Barksdale 10% • Why don’t ownership shares match initial investment shares? The ownership shares do not correspond to the amount of the initial investment because the initial investments were made at different times, and Netscape’s value has increased over time. Thus, since Jim Clark got in on the ground floor, his $4.1 million bought a much larger share of Netscape than the $18 million provided by the media companies who invested later in Netscape. Netscape was a riskier investment for Clark than it was for the media companies (when Clark invested Netscape was still an idea – when media companies invested Netscape was already a business with a product and a business plan), so it makes sense that Clark should get a higher expected return. 6 Possible Sources of New Capital • “Angels” (i.e., rich individual investors) Unlikely, looking to raise much more than a few million $ • V.C. funds Unlikely, Kleiner Perkins perhaps already tapped out, also looking to raise $100M+ (more than VC fund(s) would provide) • Bank loans Unlikely, no tangible assets, no stable cash flows • Strategic alliance / be bought out This, along with IPO, is a possibility. If IPO goes well, will be in much stronger bargaining position with a potential acquirer (i.e., AOL). 7 Advantages to IPOs • Access to new sources and lower cost of finance • Cashing in for original investors • Create a currency to use to finance mergers...
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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NETSCAPE_CASE_521_2011 - 1 Netscape’s Initial Public...

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