Session 3: October 1, 2007

From Idea to Opportunity: Our First Case Study

Quote of the Day

"What people say you cannot do, you try and find that you can." ~ Henry David Thoreau

Summary

What is the difference between an idea and an opportunity? Founded by two Stanford Ph.D. students, Jerry Yang and David Filo, Yahoo! has grown into one of the most well-known companies in the Internet industry. The case study used in this session discusses the Yahoo! vision and concept, the founders, and different funding options for starting a business, such as corporate sponsorship, being acquired, and raising venture capital.

Required Readings (Policy on Required Readings.)

Readings from the Textbooks:

Technology Ventures (Dorf and Byers): Ch 6 Risk and Return; Ch 7 Venture Creation and the Business Plan (Highlights: 6.3, 6.5, 7.1, 7.2)

Case:

Yahoo! 1995: First Round Financing (Dorf & Beyers Textbook - Appendix B) . Please do not review the Yahoo! video on the textbook DVD prior to class.

Additional articles to read:

Case Analysis Guidelines

Watch the following short video clips:

Study Questions (Policy on Study Questions.)

What makes Yahoo! an attractive opportunity (and not just a good idea)?
Put yourself in the shoes of David Filo and Jerry Yang:
- Should you take Mike Moritz's offer?
- What are the advantages and disadvantages of each of the funding options we could pursue?
- How much is Yahoo! worth?
- How much of a stake can we give Mike Moritz and still retain control of the business?
- What is Yahoo!'s business model? That is: How will Yahoo! Make Money?
Now put yourself in the shoes of Mike Moritz, a prominent Silicon Valley Venture Capitalist
- What makes Yahoo! an attractive opportunity (and not just a good idea)?
- Identify the major risks in each of these categories when it comes to Yahoo! as an investment: technology risk, market risk, team risk, and financial risk. Rank order them.
- How can your investment help Yahoo!'s founders to mitigate and manage these risks?
- What else do Jerry and Dave need besides money?
- How can a VC as a source of "smart money" bring Yahoo! besides cash?

Team Case Analysis (Policy on Case Analyses.)

(Powerpoint Deck with 6 slides maximum. This is our Policy on Case Analyses. Follow it for all cases when your team is assigned responsibility to submit your analysis. We have reproduced these guidelines at the Policy link above.)

Powerpoint Deck:

Slide 1: Team photos and names of team members plus the team name (Team XXX DART of Yahoo! 1995 case, for E 145 October 1, 2007)

Slide 2: Your decision(s): answer Jerry and Dave?fs decisions in the case.

Slide 3-5: Analysis: Any quantitative and qualitative analysis to support your decision. Use the readings for the day. Find two or three tools that seem to apply. Apply them.

Slide 6: Reality Test: Identify 3-5 of the biggest risks facing Yahoo!. How will you manage those risks? What is a contingency plan if your game plan fails?

Excel workbook: Two pages not larger than 8.5 inches by 11 inches with font we can read. Do tables, graphs of any of your quantitative analysis to support your decision. Use the tools from your readings and the workshop that we will conduct, as well as any tools from your other courses that apply. Make sure your assumptions are clearly documented. Cite any sources of tools you use in a footnote.

DART = Decisions + Analysis + Reality Test

This framework will be the way that you do case openings and that the teaching team grades them.

Submission Format

1. PUT IN EMAIL HEADER: E145: Assignment name. Team Name.
i.e. E145: Yahoo Submission. The Randys.