Hotmail Case Study

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Question Assignments: 1. Brief Case Summary In August of 1995 Javasoft was founded by Sabeer Bhatia and Jack Smith. Their first round of financing was from DFJ in 1996. Hotmail was officially launched on 7/6/1996. The Second round of financing was provided by DFJ in August of 1996. The third round of financing by Menlo Ventures and DFJ was completed in August of 1996. The fourth round of financing by Menlo Ventures and DFJ was in December of 1996. The fifth round and exit round of financing was in December of 1997. 2. In the first round, Hotmail raised in total of $315,000: $300,000 from DFJ and $15,000 from Rex Smith. DFJ got 15% for its investment, so the valuation was $2,000,000 Concerns for entrepreneur teams from…show more content…
If there is no milestone, external investors could not decide when they should invest, how much they should invest, and whether is worth of investing. Milestones help company to decide the types of exit options and the value of exit. If there is no milestone, the entrepreneurs cannot know when the best time to exit is, what exit method is best for them and whether they can reach the destination. In the Hotmail case, even though Hotmail failed to reach its revenue target, its number of subscribers has reached 10 million, which is good for Hotmail to search for good exit option. In the fifth round, although Hotmail has negative net income (412,055) and negative cash flow (308,677), it still attracts many exit options. And, finally, Hotmail was sold to Microsoft at price $400 million, which is much contributed from that Hotmail has reached many milestones before and Microsoft believes it can achieve more value enhanced milestones in the future. If the settled milestones are attractive to investors, the company can raise additional investment capital at a good price. If these milestones are not valued by investor, it won’t raise new funds, or it will raise new funds only at a punitive price.Like Hotmail case, in round four, Hotmail raised fund, but pay more shares to the investors. $1.25 per share is lower than the
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