Will the Company Disappoint or “dazzle” it’s Investors?

Will the Company Disappoint or “dazzle”

it’s Investors?

Group 4Nguyen Lam Thanh TrucLouis Bohan Tsatsral DorjsurenAmarzaya Nasanjargal

IntroductionZazzle was founded by two brothers Bobby and Jeff

Beaver in 1999. It is an online service that allows customers to upload

images that can be printed on T-shirts, stamps, posters, cards, coffee mugs and a variety of other items.

At that time, there was no dominant Internet company servicing the kind of business. Therefore, by searching on that website, users could choose images in library or create a digital images and place them on Zazzle.

This service provides a marketplace for artists, freelance photographers, and photo hobbyists to sell their work.

Introduction In 2003, after 3 year of hard work and

overcame the hurdle, the business was launched, and the company began to receive many orders.

Zazzel's business model was very similar to Dell's. It doesn't has inventory costs, except for the disk spaces needed to store images and provide paper and ink.

Customers had to pay by credit card before the order was shipped.

IntroductionAfter a year, the company was contacted by a venture capital

firm. The company offered to invest US$16,000,000.Pros

Partnering with two prestigious venture capital firms would provide Zazzle tremendous credibility.

Grow much more quickly with the investment.Build its infrastructure.Expanding the firm's brand. Larger returns are expected

ConsForced into a fast growth mode.Would be under pressure.Overhead gets bigger.Increasing scrutiny.Giving up of large part of company that they have worked hard

for four years.

Question 1So what do you think? Do you think Kleiner Perkins

and Sherpalo Ventures made a wise decision investing $16 million in Zazzle? Three years from now, do you think that Zazzle will have disappointed or dazzled its investors? Why?

Answer 1Wise decision (in spite of significant amount)/Dazzle its

investors

The Ventures probably thought that sales will quickly grow.

They may also feel that Zazzle is a start point for the sale of customized on-demand products, and that t-shirts, stamps, and posters are only the start.

On the con side, although Zazzle says that it has proprietary technology, it’s hard to believe that what they’re doing can’t be easily copied.

Question 2Look at Table 10.2 in the chapter. At the time

that “Zazzle” raised venture capital funding, to what extent did it resemble the ideal candidate for venture capital funding as stipulated by the materials in the table?

Answer 2 10.2 Matching a New Venture’s Characteristics with the Appropriate Form of Financing or Funding

Answer 2It is not clear from the chart that Zazzle was a candidate

for venture capital funding. Zazzle’s ability to print shirts and posters “on-demand” is

unique, but the idea of printing logos and images on apparel products is hundreds of years old.

It is not clear whether Zazzle will experience high growth and Zazzle market niche is also not clearly defined.

Finally in regard to proven management, Zazzle’s lead entrepreneurs, Bobby and Jeff Beaver have no business experience.

The beaver’s father, who is involved with the firm, is a serial entrepreneur, and apparently has substantial experience.

Question 3Evaluate Jason Ball’s (the blogger’s) criticism of Kleiner Perkin’s investment in Zazzle. Do you think Ball makes some good points or do you think his argumets are off-base? Explain your answer.

Answer 3Stages of investment

A. Series Seed Product design, hire a few employees, launch first product $250k - $2million median

B. Series A Product and Userbase known, create business model, increase distribution,

expand into new markets. $3m - $7million median Examples: Uber, Instagram

C. Series B Scaling the business (expansion) $7m to tens of millions Example: Angry Birds $40m

D. Series C-Z Grow fast, go international, acquisitions Tens to hundreds of millions

Note: Stages of investment are arbitrary

Answer 3$16m is TOO MUCH $16m worthwhileBased on the median

Series A investment being $3m - $7million, Ball is right, $16m is too much.

$16m is appropriate for Series B, startup that already has a business model, already tested in market

Low deficits in Series Seed period

Zazzle’s proprietary silk screening process

Lower cost of productionCreated the customized

T-shirt niche marketPotential to dominate

this niche

Question 4What do you think is Zazzle’s exit strategy? How will Kliener Perkins and Sherpalo Ventures recoup their investment?

Answer 4Zazzle exit strategy

KP and Sherpalo Recoup $

Hire more employeesTarget well-known

intellectual property wholesalers, offer them additional royalty opportunity

International expansionAcquire related printing

companiesDesign Zazzle App for

mobile devices

Encourage Zazzle finding partners

IPO Acquiring longterm

contracts with media owners

International expansionAcquire related printing

companies

http://blog.eladgil.com/2011/03/how-funding-rounds-differ-seed-series.html