FINANCE GUIDE
Click here for NEW Spring 2001 Case in Point
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Critical Thinking Questions
- From the perspective of a start-up e-business, what are the advantages and disadvantages of signing with a for-profit incubator?
- What criteria do you think venture capitalists use when deciding whether to invest in a particular e-business?
Finance On the Web
For a closer look at what's happening in the world of initial public offerings, check IPO Central (http://www.ipocentral.com). Scan the list of firms that are going public this week and follow the link to see the latest "IPO Scorecard."
- What is the trend in the number and average value of IPOs?
- In what industries are most of the new IPOs taking place?
E-Business Case in Point: Niku
- How did Niku benefit when its investment bank raised the offering price?
- Why do you think Dibachi would take Niku public instead of seeking more funding from venture capitalists?
E-Business Case in Point: FullAudio
Although FullAudio (http://www.fullaudio.com) is only one year old, its product could change the music industry. The Chicago-based start-up is creating a portable, wireless gadget that allows listeners to play digital music on existing stereo systems and radios. FullAudio wants to price the gadget under $100-and make money from selling subscriptions to online music services where listeners can download the songs they want. The viability of this e-business hinges on whether FullAudio can obtain licenses to the vast music catalogs of the major record labels.
To finance their new firm, cofounders Chris Gladwin and Gary Cohen met with Stewart Alsop, a partner with the venture capital firm New Enterprise Associates, and with Randy Komisar, an experienced e-business entrepreneur. Once they had the support of Alsop and Komisar, the cofounders approached another private investor and Ideo Product Development, the design firm that created the look of the FullAudio gadget. In the end, before the firm celebrated its first anniversary, it raised $4.3 million in funding-the first round of what could be a major financing effort if a number of record labels agree to do business with FullAudio.
- What kinds of expenses might e-businesses such as FullAudio face in starting an entirely new venture?
- Why would FullAudio ask a supplier to become an investor in its e-business?
Source: Jennifer Lewis, "Herring 100: 10 to Watch," Red Herring, June 2000, http://www.redherring.com.
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E-Business and FinanceE-Business Case in Point: eParties and eCompanies When eParties opened for business in December 1999, launched by the eCompanies incubator, it was designed as a complete online party store and planning center. Customers could simply sign on, plan their guest lists, and buy hats, plates, invitations, and everything else for birthday bashes and other parties. Just six months later, however, eParties fired all its employees and was bought by the online toy retailer eToys (http://www.etoys.com). What happened? As the online business environment becomes increasing competitive, weaker firms are being forced out of business or are having to arrange mergers to gain the strength to continue. Timing is also important. Online rivals such as iparty (http://www.iparty.com/) opened for business well ahead of eParties, so iparty was already established when the newcomer joined the bash. In addition, profitability plays a critical role. As eParties learned, the profit margins on party goods are relatively slender. In the end, although incubators such as eCompanies can provide valuable support in the form of funding, office space, and other assistance, e-businesses must attract loyal customers and build strong, steady sales to stay alive.
Source: "Eparties Turns Out the Lights," Red Herring, June 5, 2000, http://www.redherring.com/industries/2000/0605/ind-ecompniaes060500.html; Lori Enos, "Etoys Acquires Online Party Site," E-Commerce Times, June 12, 2000, http://www.ecommercetimes.com/news/articles2000/000612-5.shtml.
Current events news summaries: As discussed in an earlier E-Business Case in Point, Niku's IPO got off to a good start, but the stock price has been lower in recent months. Check the company's investor relations page to find out about the company's latest earnings and stock price. What's next for Niku? http://investor.niku.com/ Chinese e-businesses are also facing financial challenges. Online start-ups that once looked so promising are now struggling, despite meteoric growth in Internet usage. What's happening? http://www.redherring.com/investor/2000/0814/inv-troubles081400.html Venture capitalists such as Benchmark Capital and Crosspoint Venture Partners are critical to the funding equations of many e-businesses. Who are the leading venture capitalists–and what are they backing? http://www.forbes.com/asap/00/0529/121.htm Charles Schwab, E*Trade, and TD Waterhouse are all getting ready to allow online investors to buy and sell stocks and bonds on any of the world's major stock exchanges. What are their plans? http://www.ecommercetimes.com/news/articles2000/000612-5.shtml |
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E-Business and FinanceE-Business Case in Point: Icebox.com Once VC investors fund an e-business, they closely monitor its progress and prospects. Sometimes they put pressure on a company to make changes that will affect financial performance, as Icebox.com has learned. Icebox.com, which develops Web-based creative animated shows, came online in June 2000. Within a few months, both Showtime Networks and Fox Broadcasting had licensed Icebox.com shows as the basis of live-action television comedies. Despite continued interest in its shows, however, Icebox.com recently laid half of its 100 employees in a bid to achieve profitability more quickly. "We're being forced by our investors to take a very rational look at the business and do the things that were the right thing to doóand we've known were the right things to doófor five months, but didn't want to," said CEO Steve Stanford. "We need to be able to do shows a lot less expensively than we've done in the past." Now the company is outsourcing much of its production operations, and it will ask some of the laid-off employees to work as freelancers on selected projects. Stanford says Icebox.com is aiming to be profitable by the end of 2001, which should be good news to the eCompanies incubator and other investors.
Source: Gary Gentile, "Web Entertainment Site Cuts Staff," Washington Post, November 28, 2000, http://www.washingtonpost.com/wp-srv/aponline/2001128/aponline203621_000,htm. Current events news summaries: CarsDirect.com filed for IPO in the spring of 2000, but as of mid-November, it had not followed through on the plan to go public. Where does the company stand relative to its competitors, and why is it suing KPMG over customer-tracking technology?
Venture capital financing continues to flow to e-businesses based in Southern California. Who's getting VC capital, and for what? IPOs have raised more money in 2000 than in 1999, but first-day closing prices are no longer setting records. What are the trends in IPOs? |
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