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Yahoo! 1995: First-Round Financing

July , 2017

Elior Anina, Ye Hong, Marouane Smaili

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Background

1n 1995, Yahoo! Was founded by Yang and Filo, two Stanford School of Engineering graduate students
Yahoo! was a human-crafted hierarchical approach to organizing information for intuitive searches
Filo and Yang wrote the software that allowed them to group their bookmarks into subject areas
Handcrafted the topics for Yahoo!
Over time, popularity of the Web increased

Eli

Image Source: https://www.ispblog.com.br/wp-content/uploads/2016/03/global-internet-blog-1000x562.jpg

Script:

So now we will talk a little bit about the background of the case and shed some light about the problem that the founders of Yahoo faced as their company grew.

Yahoo was founded in 1995 by Yang and Filo who were 2 graduate students at stanford school of engineering

They saw there was a need as the internet became more popular and poeple wanted to learn about more topics and subjects on the internet

There was no location where individuals could find information in a organized manner

Yang and Filo recognized the Need for a location on the web where individuals could easily navigate and explore the web by clicking through multiple topic and category headings

To start, Filo and Yang individually wrote software that allowed them to group their bookmarks into subject areas

This was a key success factor because the founders knew what people wanted to read

Topics were handcrafted and carefully chosen

Yahoo started to become popular via word of mouth marketing and email

Over time the web became more popular and Yahoo grew as its user database increased and Yahoo became a web sensation

1n 1995, Yahoo! Was founded by Yang and Filo, two Stanford School of Engineering graduate students
Yahoo! was a human-crafted hierarchical approach to organizing information for intuitive searches (allowed internet users to easily navigate and explore the web by clicking through multiple topic and category headings)
Filo and Yang wrote the software that allowed them to group their bookmarks into subject areas. (key success factor is that the founders had a great sense of what people wanted to read)
The topics chosen were handcrafted (It was very labor intensive)
Over time, popularity of the Web increased (most popular internet search site on the World Wide Web, Existence spread by word of mouth and email

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Background

Options to Explore

Sell Yahoo!
Partner with a Sponsor
Start an Independent Business using Venture Capital Financing

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Problem Statement

“Right now the biggest risk that you guys run is not making a decision… It is imperative that you make a decision now if you are going to survive. To help you make a decision, I am going to give you a deadline… tomorrow.”

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SWOT Analysis

Opportunities	Threats
Viable sponsorship or advertising programs to generate revenues Growing number of users of the World Wide Web	Potential loss of ownership due to some financing options Threats from major companies (AOL, Prodigy, Compuserve)
Strengths	Weaknesses
Simplified web surfing 10 million accesses a week	Inability to keep up with demand Lack of resources to sustain offer

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Business Model Canvas

Key Partnerships Netscape Open Text Verizon Joint ventures (Sequoia Capital, Softbank) Coopetition (Google)	Key Activities Platform Problem solving	Value Propositions Human-crafted hierarchical approach Providing Internet search capabilities (keywords) Organizing the information for intuitive searches (categories)		Customer Relationships Self-services Communities (Yahoo! groups) Co-creation	Customer Segments Individual user/customer Large businesses Small home-based businesses
	Key Resources Yahoo! Brand Yahoo! Algorithm Financial Resources Human Resources			Channels Web Presence Word-of-mouth Advertisements Web Integration
Cost Structure Fixed costs: Technical development/maintaining, Salaries, Physical space Variable costs: Advertising and promotion, Utilities			Revenue Streams Initially: None Later: Sponsorship Advertisings

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Analysis

Options	Advantages	Disadvantages
Accept Corp. partnerships (AOL Prodigy, Compuserve)	Solving financing issue Association with renowned companies	Diluting brand and value proposition Loss of control
Accept Sequoia’s offer	Secure funding ($1 M) Management team Sequoia’s Success Maintain independence	Giving up 25%
Merge with Existing Corp. (Netscape)	IPO plans Publicity and momentum Compatible Corporate Culture	Loss of primary control

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Companies like Yahoo!

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Value Proposition	Smartphone focused instant messaging App
# of Users (2017)	1.2 Billion
Origin of idea & key Pivot	Movie night Notifications vs. instant messaging
Revenue stream	No revenue in the beginning Annual fee $1, cancelled
Rounds of funding

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Value Proposition	Fun and simple way to make and share photos
# of Users (2017)	700 million
Key pivot	Mobile photography to photo-sharing
Revenue stream	No revenue prior to Facebook’s deal Advertising via Facebook
Rounds of funding

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Value Proposition	Money transferring via a mobile phone app.
# of Users (2017)	$ 203 million
Transactions (2016)	$ 17.6 billion
Key pivot	Text message-based payment vs. mobile App
Revenue stream	Charge business fee and credit card fee
Rounds of funding

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Recommendations

Negotiate a better deal with a different Venture Capital firm

Plan for an IPO

“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.”

- Jerry Yang, 1997.

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Discussion Questions

1. If you were one of Yahoo!'s founders, which financing option would you choose at this point?

2. In two weeks, we will have a class on funding. From this presentation and your current knowledge, what financing options would be strategic for the first few stages of launching your project idea?

3. Many founders of popular app services reiterate that the focus should be on the value. Still, a company needs revenue to operate and grow. To what extent should you as an entrepreneur focus on your value proposition and customers pains and gains, rather than focusing on your revenue streams?

https://www.globalpolicy.org/tables-and-charts-ql/27519-internet-users.html

http://tech-insider.org/internet/research/1995/0410.html

https://searchenginewatch.com/sew/study/2064954/where-are-they-now-search-engines-weve-known-loved

https://www.bloomberg.com/news/articles/2016-07-25/from-internet-leader-to-laggard-yahoo-through-the-years

https://www.slideshare.net/Freddy56/lecture-note-10

https://www.crunchbase.com/organization/whatsapp#/entity

http://www.investopedia.com/articles/personal-finance/040915/how-whatsapp-makes-money.asp

http://www.informationweek.com/software/social/facebook-acquires-whatsapp-3-key-benefits/d/d-id/1113922

https://dealbook.nytimes.com/2014/02/19/facebook-to-buy-messaging-start-up/?hp

http://www.visualcapitalist.com/evolution-instant-messaging/

http://www.whoishostingthis.com/blog/2014/10/22/instant-messengers/

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References

https://en.wikipedia.org/wiki/WhatsApp

https://en.wikipedia.org/wiki/Instagram

https://en.wikipedia.org/wiki/Venmo

http://www.investopedia.com/articles/investing/032515/whatsapp-best-facebook-purchase-ever.asp

https://www.lifewire.com/what-is-instagram-3486316

https://bits.blogs.nytimes.com/2012/08/16/payments-start-up-braintree-buys-venmo-for-26-2-million/

http://www.investopedia.com/articles/personal-finance/010715/venmo-its-business-model-and-competition.asp

https://www.crunchbase.com/organization/venmo#/entity

https://www.crunchbase.com/organization/whatsapp#/entity

https://www.crunchbase.com/organization/instagram/funding-rounds

https://www.globalpolicy.org/tables-and-charts-ql/27519-internet-users.html

http://tech-insider.org/internet/research/1995/0410.html

https://searchenginewatch.com/sew/study/2064954/where-are-they-now-search-engines-weve-known-loved

https://www.bloomberg.com/news/articles/2016-07-25/from-internet-leader-to-laggard-yahoo-through-the-years

https://www.slideshare.net/Freddy56/lecture-note-10

https://www.crunchbase.com/organization/whatsapp#/entity

http://www.investopedia.com/articles/personal-finance/040915/how-whatsapp-makes-money.asp

http://www.informationweek.com/software/social/facebook-acquires-whatsapp-3-key-benefits/d/d-id/1113922

https://dealbook.nytimes.com/2014/02/19/facebook-to-buy-messaging-start-up/?hp

http://www.visualcapitalist.com/evolution-instant-messaging/

http://www.whoishostingthis.com/blog/2014/10/22/instant-messengers/