Winning Strat, Vermeer

David LiuJanuary 28, 2025About 3 min

Winning Strat, Vermeer

View the Introduction to Venture Finance lecture video and accompanying slides (Intro To Venture Finance.pdf). These materials will help acquaint you with some of the terms used in the readings & cases. We will go into depth in venture finance and investing later in the semester.

Following the “Case Method Overview.pdf” posted for reference on the course website, read the 4 sequential sections of the Vermeer case:

Vermeer Technologies (A): A Company Is Born, 397078-PDF-ENG
Vermeer Technologies (A1): Hiring the CEO, 397079-PDF-ENG
Vermeer Technologies (B): Realizing the Dream, 397080-PDF-ENG
Vermeer Technologies (C): Negotiating the Future, 397081-PDF-ENG

The Vermeer product ultimately became Microsoft’s FrontPage web site creation program.

Study Questions

Think about how you would answer the following study questions during your analysis of the Vermeer case:

Describe the evolution of Charles Ferguson’s original idea to Vermeer’s eventual product. What market opportunities and competitive forces drove the evolution?
What were the sources and amounts of capital for Vermeer from its inception in late 1993 through the end of the (C) case in December 1995?
Describe the working climate within Vermeer during the time of the (B) case? Was this a company you would want to work for at that time? Why?
What was Vermeer’s marketing strategy as described in the (B) case?
Vermeer was facing 4 alternative courses of action in the (C) case. What were the pros and cons of these several alternatives? What about the pros and cons from Microsoft’s perspective?

Be prepared to discuss the Vermeer cases in class.

Describe the evolution of Charles Ferguson’s original idea to Vermeer’s eventual product. What market opportunities and competitive forces drove the evolution?
- Ferguson identified a need for a shrink-wrapped, easy-to-use web authoring tool for businesses. Initially, his idea included servers, browsers, and development tools. Realizing existing tools covered servers and browsers, he focused on the development tool, eventually leading to the creation of FrontPage. The internet's rapid growth and the lack of user-friendly web creation tools presented a significant market opportunity. Competitive pressures included Microsoft, Netscape, and other smaller rivals like Navisoft and Ceneca Communications, which threatened to dominate the market.
What were the sources and amounts of capital for Vermeer from its inception in late 1993 through the end of the (C) case in December 1995?
- Vermeer received $4 million in initial funding from venture capitalists (Sigma Partners, Matrix Partners, and Atlas Venture) in January 1995. A second round of financing in late 1995 brought in $7.2 million at a pre-money valuation of $32 million. Additional funding and acquisition offers surfaced as the company grew.
Describe the working climate within Vermeer during the time of the (B) case. Was this a company you would want to work for at that time? Why?
- The working climate was intense and high-pressure, with long hours and tight deadlines. Weekly meetings fostered accountability but also created tension. Despite the challenges, there was a strong sense of purpose and camaraderie among the team. The pace might appeal to those passionate about innovation and willing to endure stress for a groundbreaking product.
What was Vermeer’s marketing strategy as described in the (B) case?
- Vermeer initially relied on direct sales, strategic partnerships, and OEM relationships due to limited resources. The company targeted alliances with prominent firms like AT&T and Tribune Media Services and aimed to create buzz through personal contacts, PR efforts, and analyst engagement.
Vermeer was facing four alternative courses of action in the (C) case. What were the pros and cons of these alternatives? What about the pros and cons from Microsoft’s perspective?
- Alternatives for Vermeer:
  - Remain independent: Potential for high returns via an IPO, but risk of being outcompeted by larger players like Microsoft and Netscape.
  - Sell to Microsoft: Access to resources and a strong distribution network but risk of cultural mismatch and loss of independence.
  - Sell to Netscape: Offered autonomy and a competitive edge against Microsoft, but Netscape’s financial stability and execution were concerns.
  - Sell to Spyglass: Quick acquisition option, but Spyglass lacked the scale of Microsoft or Netscape.
- From Microsoft’s perspective:
  - Acquiring Vermeer offered an immediate entry into the web authoring space, strengthening their internet strategy and complementing Office products. However, integrating a small startup like Vermeer posed cultural and operational challenges.

Let me know if you’d like these answers refined or prepared for submission!

Question of the Day

What are four (or five) sources of cash & two types of securities and how do they differ?
How can a startup compete effectively in a new market with many large, well-established companies?

Intro to venture finance

What do all startups need to start up?
Cash
4 sources of cash
1. Debt
2. Equity
  issue stock
  no limit to outside
3. bootstrap
4. Crowd funding
5. Grant funding
  1. Government