1999 | Case No. E64
The case chronicles the founding and growth of Hotmail Corporation, the leading provider of free e-mail services to consumers. The focus of the case is on their financing history, starting with their first round negotiations with the venture capital firm of Draper Fisher Jurvetson, and finishing with their consideration of a fifth round of financing only a year and a half later. The first round was a relatively quick negotiation to give the company seed capital of just over $300,000. The second round was a contentious one that examines the relationship between entrepreneurs and their VC investors. The third and fourth rounds of investing also are interesting as they were structured as contingency financings. Finally, the fifth round of financing shows a number of options that the managers must consider, including an investment from Kleiner Perkins, strategic financing, and an acquisition offer from Microsoft. To make things more complicated, Hotmail was running out of money and needed a short-term solution (possibly bridge financing) in order to complete these negotiations. The case examines each of these alternatives and asks the reader to rate the alternatives. Teaching Note available.
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