For our Entrepreneurship course, Prof. Yeoh gives us readings weekly, and the above case study of Yahoo! is one of them.
It's been an interesting story, about the two founders of Yahoo!, namely Jerry Yang and David Filo, who were engineering PhD students from Stanford.
In 1993, those two students created a hierarchical list of links to interesting sites on the internet called Yahoo! And in 1994, Yahoo! got 2million hits per day and it's growing rapidly.
1995 was the major turning point for those two co-founders. They got an opportunity to take Yahoo! from a hobby into a big business. Their opportunity cost is "the failure to complete the PhD".
And to change into the big business, the two PhD students had the choices as follows:
- to go into partnership with either Netscape, or AOL, or others;
- to raise venture capital, i.e, to accept 1 Million offer from Sequoia Capital, and give 25% of Yahoo! to it;
- to wait, search, and ask for a better offer from other VCs;
- For accepting the offer from Sequoia Capital, which has been a well-known VC with successes such as Apple, Cisco, Oracle, there was 1 Million US$ on the table for them, in change of 25% of the company, and getting fund from such top VCs would get them access their vast network and it would make the future rounds of funding much more easier, too.
However, the point is that "Is it wise to give up so much share (25%) at this price so early?"
The decision is harder.
How will be the best choice to proceed?
What should the founders do?
Prof. Yeoh questioned us what should we do if we're in Yang and Filo's places...
Of course, if I were to choose, firstly I'd try to negotiate with Michael Moritz for a better offer; and if not succeed, I would wait for and try to find out another firm which would offer more with the same percentage, e.g, 4 Million US$.
However, the decision of the two founders was that they went with Sequoia Capital, accepting the offer which valued Yahoo! post-money for US$4M.
And here is the line that I noted from the lecture as follows:
Good advice for the start-up CEO: Eat when served!
No offense..... but, what if we(they) waited for a better offer?
Who knows... they couldn't get a better amount from another successful VC(s)?
Of course, I understand and accept the above useful advice.
And the following line is the most touching for me to read this story:
"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.
Sometimes, or often, luck is really strange. However we've tried, whatever we have made effort, it's been depending on luck, too. And when it coincides, I mean .. when Luck and what we've made attempt meets, it becomes successful. Of course, Jerry and David, they two are really hardworking as well as excellent students. However, as Jerry said, in case they got into entrepreneuring a firm, they wouldn't be the founders of Yahoo!... Who knows...
However, from their hobby, they managed to get into business, as the entrepreneurs of the world-wide famous search engine and website named "Yahoo!" ...
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