1. Why are investors excited about Netscape? What is Netscape’s business model? What must Netscape accomplish if it is going to be successful in the long run? What are the risks Netscape faces?
Marc Andreessen, along with the other founders of Mosaic, accomplished what other Internet providers before failed to do: they created a Web browser that did not require the user to have expertise in HTML coding. Mosaic’s user-friendly click-and-point interface allowed for a wider customer base. After purchasing the licensing rights of Mosaic from Spyglass, Andreessen’s newly formed Netscape Communications Corporation looked to expand the popularity of the software. Netscape’s founders followed the ...view middle of the document...
Despite the operating losses and influx of new competition, Netscape’s growth potential and business model enticed possible investors. Investors were excited about the head start Netscape had in the exponentially growing Web browser market, and were also intrigued by the unknown potential of the industry as a whole. The Internet was the new investment bubble of the time, and investors were willing to invest in Netscape despite negative earnings.
2. What/who have been the past sources of capital for Netscape and how much capital did they provide?
Like most new companies with high growth potential, Netscape received equity funding from private investors. Private equity financing represented the majority of capital for Netscape. Long-term debt obligations only represent approximately 10% of the firm’s total liabilities and equity in 1994 ($725,000) and 2% in 1995. Jim Clark, founder of Silicon Graphics Inc., acted as an angel investor and provided $4.1 million in private equity to Netscape. The venture capital firm of Kleiner, Perkins, Caufield & Byers provided $5 million in private equity to the firm. Morgan Stanley underwrote the largest private investment of $18 million from Abode Systems and five other media firms. These investors received preferred stock in return for their investments. This stock could be converted into company common stock when Netscape went public.
3. What is the ownership structure at the time of the IPO (who are the primary owners)? Why do the ownership shares not correspond to the initial investments (the ratio of initial investment to ownership share is not the same for each investor)?
At the time of the IPO, there were four primary owners of Netscape. The largest stakeholder of Netscape’s equity was Jim Clark, who accounted for 24%. The other primary owners were the venture capital firm Kleiner, Perkins, Caufield, & Byers, a group of six media companies led by Adobe Systems, and Netscape’s president and CEO, James Barksdale. They held 11%, 11%, and 10% of Netscape’s equity, respectively. The ownership shares of Netscape did not correspond to the investments made by the primary owners because the owners made their investments at different times. Jim Clark invested in Netscape first and therefore paid the least amount of money for the largest share of the firm. His second investment came at the same time as Kleiner Perkins, and at that point the price to purchase a share of Netscape had obviously increased. Clark’s total investment amounted to $3.5 million for 24% of the firm, whereas Kleiner Perkins paid $5 million for 11% of the firm. The investment made by the media companies came later, when the price of Netscape had risen even further. Therefore, the media firms purchased an aggregate 11% share of Netscape for $18 million. The final primary owner, Barksdale, was not said to have invested any capital in Netscape. However, as president and CEO, it can be assumed that he was offered a 10% share as...