American History 1988
Chapter 347 - 336 A New Mode

Chapter 347: Chapter 336 A New Mode

"So Durell, have you thought it through about Netscape’s financing?"

As soon as Dean walked into the office and saw Durell sitting on the sofa, he went straight to the point.

"I need to see how Netscape has performed these past two months first." Durell, with his eyes red and puffy, slowly put down his coffee cup.

It was apparent that his sleep hadn’t been great lately.

Indeed, that was the case, as the changes on the internet, especially everything concerning Netscape, had occupied much of his thoughts.

Even for someone as impromptu as him, a valuation of 600 million US dollars was too insane.

It wasn’t that KeyPoint Ventures hadn’t made higher investments, but for a company that had yet to turn a profit, the figure seemed too abstract.

Dean understood the turmoil in Durell’s mind, so after nodding at Clark, he too took a seat in the sofa area.

Soon, just like last time, a simple report was handed over.

Durell didn’t hold back; he devoured the data on the report with knitted brows.

"Excluding the first month’s free trial, as of November, we’ve received a total of 180,000 orders.

Although depending on the number of orders, the license fees for the Explorer browser may be discounted.

But they have brought in at least 6.5 million US dollars in revenue for Netscape," Clark explained from the side.

"These figures are decent, but what’s Netscape’s profitability?" Durell’s brow furrowed slightly, these numbers alone weren’t enough to sway him.

Hearing his assessment, Dean and Durell exchanged a smile, "Our profitability exceeds 80%."

"What?!" Durell looked up in shock.

"Durell, do you notice what’s different about Netscape?" Dean picked up the conversation.

"Different?" Durell glanced around; everything seemed normal here.

"Netscape has no distribution channels," Dean said, tapping the table lightly with his finger. "The internet has taken on that role."

"Distribution channels? The internet?" Durell was initially confused but his eyes gradually widened in realization.

"You didn’t partner with any distributors, and just completed the product distribution through the internet?"

"Pretty much," Dean nodded. "Because we offered a one-month trial period,

most enterprise users had already finished downloading the browser by the second month.

What we call sales had actually turned into licensing agreements.

Once the final payments are made, we can deliver the product with just a few simple steps on the server side.

It’s that simple, no sales team, no marketing team.

Even because of the browser’s ease of use, Netscape doesn’t need to set up an after-sales department.

Look, aside from the personnel and equipment you see here, we almost have no other expenses."

Durell’s already red eyes were now gleaming even more brightly.

He couldn’t help but stand up and walk around the office; the internet had nearly overturned his entire understanding.

It was possible to distribute products over the network, it was possible to become a viral bestseller without costly marketing.

Although Dean’s description was somewhat exaggerated, as a mature company couldn’t operate without a sales or marketing team,

without a doubt, with the internet as a medium, the scale of these teams could be significantly reduced.

This meant one of the two major costs for software companies, the cost of labor, would be hugely cut.

Then there were the distribution channels, traditional physical distributors could take up to 30% in margins.

If this could all be solved through the network, just how high could Netscape’s profitability go?

Fire coursed through Durell’s veins as he almost could assert that this would be a revolutionary shift.

"Okay, this surprised me, but it still doesn’t justify a nearly 600 million dollar valuation for Netscape.

Based on just now’s data, Netscape’s annual profit would be just around fifty to sixty million dollars.

But we both know, the actual figures would decline because as the scale expands, the profitability would correspondingly decrease."

The ultimate goal of venture capital is profit, if there’s no margin in valuation, what’s the point in investing?

"The data on our financial reports isn’t limited to just these," Dean gestured towards the report in his hand with his chin.

"Hmm?" Durell glanced down reflexively, then he saw an additional set of figures at the end.

"This is...?" His mouth hung agape at the row of figures.

"Remember the other businesses of Netscape I told you about before? SSL certificates, HTTP licenses..."

With each sentence Dean spoke, Durell’s eyes lit up a bit more.

"Yes, they’ve contributed an extra profit for Netscape.

The 180,000 browser orders mainly came from over a thousand enterprises.

And to ensure the security of internal data, most of them purchased these network protocol certificates.

An average annual expenditure of around 2000 dollars isn’t expensive, is it?"

To enterprises, 2000 dollars indeed is a trifle, but it translated into over 2 million in sales for Netscape.

"These protocol certificates are even simpler; they don’t need any client-side effort, they’re practically just plugins in the browser.

So, their revenue is pure profit, with human resources being the only expense."

This is the magic of the internet, there are many profitable endeavors.

Besides the initial investment in research and development, the rest almost adds to profits automatically.

Durell did a quick calculation — if Netscape could reach a hundred million dollars in annual profit, this investment would be absolutely worth it.

"Durell, you must be clear about the fact that Netscape’s potential is far more than what it is now.

We predict we’ll completely drive Mosaic out of the market within half a year, and you know what that means."

Dean’s last words firmly cemented Durell’s resolve.

"Within a week, KeyPoint Ventures will organize a syndicate, following the conditions we’ve previously agreed upon."

"No problem!" Dean and Clark both smiled.

...

Durell acted swiftly, distributing the entire 20% of the stock within just three days.

The so-called syndicate originally referred to secret meetings among monopoly organizations.

However, in the venture capital industry, it also signifies joint investment.

When the valuation of the financing target is high and a venture capitalist cannot afford it alone, they collaborate with other VCs to spread the risk.

Netscape was valued at 600 million US Dollars, releasing 20% of the equity meant raising 120 million US Dollars in capital.

Although KeyPoint Ventures is a top-tier venture capital firm with a fund pool usually amounting to several hundred million dollars.

Even such a fund pool consists of several funds internally.

But each fund is generally dispersed across dozens of startups, risking 120 million dollars on a single company is too high.

Therefore, after weighing the options, he approached a few peers and secured the entire 120 million dollars.

As the lead investor, KeyPoint Ventures secured directly 10% of the share.

An old acquaintance, Red Shirt Capital, took 5%, and Dick, who had previously called Dean, and his firm Enyi Investment got 2%.

The remainder was split among other players like Sassoon Ventures and Axel.

After dilution, Dean still owned 48% of Netscape, and Clark held 16%.

The remainder, Arkansan couple and the employee stock option pool, each retained around 8%.

Once the contract was signed, another big deal was completed in Silicon Valley.

"What are Netscape’s plans going forward?" Durell had already stepped into his role.

The 120 million dollars would be transferred in tranches, but each injection of tens of millions of dollars was no small sum.

As the lead investor, he had to ensure this money was put to good use.

Dean shrugged casually, "Of course, we’ll build servers, recruit staff, and then expand and strengthen the browser business."

Netscape’s email users had nearly reached 8 million, all backed by Bit’s data centers till now.

But with the forthcoming launch of the Toktok project, traffic giants like Netscape and the Price list must learn to stand on their own.

So the first thing after raising funds was to change Netscape’s office location and build its server center.

As for whose servers to buy, cough, naturally it’s the Source Code ones.

With Netscape’s user scale, those enterprise-grade high-end servers, at least a couple of hundred of them.

Look, just the hardware expenses would cost over twenty million dollars.

And that’s just the first phase of the investment; as the business grows, the number of server clusters would only increase.

This venture capital money, although it didn’t go into Dean’s pocket at Netscape.

But after making a round through Source Code, a portion would eventually become income in his account.

Activating the entire industry chain, it would be hard not to make money.

"By the way, speaking of hiring staff. Netscape needs a large number of middle and high-level executives, and I’ll leave that to you people."

In terms of connections, venture capitalists are more professional than anyone else. In their business, a large part is made through networking.

"I will first make a list, then talk to them one by one." Durell did not decline, as he had done this many times before.

"As for the IPO plan you mentioned..." Everyone present perked up their ears.

The reason they had agreed to Netscape’s valuation of 600 million US Dollars was largely because Dean had promised to take Netscape public in the shortest possible time.

Going public meant that their investments would be cashed out, which is exactly what venture capital is about.

Dean could sense their eagerness, so he had not gone back on his word.

"Netscape has already started to make a profit, so riding this momentum, we’ll push hard and take it to Nasdaq next year!"

"Great!" "Just waiting for that day!" the crowd exclaimed.

"Very good, there’s nothing more exciting than this." Durell finally relaxed.

He had a hunch that Netscape’s IPO would usher a new era.

...

At the end of ’94, quiet changes were gradually gathering strength.

The enterprise Dean had laid out on the internet years ago was slowly revealing its impressive scale.

First came the Price list, followed by Netscape and Yahoo, and now it seemed Bit’s turn had come.

After nearly a year of preparation, the Consumer Division had finally made its presence known.

Its internal spokesperson, Thomas, stated in an interview with reporters that the Consumer Division was about to launch an instant messaging software for the masses.

There was nothing unusual about this in itself, as Bit had started with this line of business.

Before, due to the limited penetration of the internet, it was only applicable in the business domain.

But now, as more and more people started using the internet, extending this service to consumers seemed only natural.

Yet what was explosive was that this instant messaging software was free!

Yes, that’s right, it charged users nothing.

This unconventional business model made the media buzz with discussions.

It also touched a sensitive nerve in Seattle, where Microsoft had always regarded Bit as one of the big three in the software industry.

Particularly since it was led by Dean Price, Seattle paid close attention to every move of Bit.

Gates even convened a strategic meeting specifically for this matter.