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Many policy makers at the Fed contend that the new economy is a fragile bubble--and that with the "irrational exuberance" of the capital markets, the sky is going to fall on the U.S. economy. That couldn't be further from the truth, according to William Sahlman. As long as the government doesn't interfere, he argues, the economy is sturdy, resilient, and raring to grow. The new economy is strong for several reasons. First, it is based on a business model that works. Any business system that relentlessly drives out inefficiency, forces intelligent business-process reengineering, and gives customers more of what they want will be sustainable. Second, it is built on America's admiration for entrepreneurs and its tolerance for failure, not to mention its easy access to capital. Third, the new economy is attracting the best and brightest minds in the country. And finally, says Sahlman, the new economy is strong because it is spreading. It may be primarily an American phenomenon now, but in a few short years it will start to show its effects everywhere, making the whole world a more productive place. Still, Sahlman believes, the road ahead is not without potholes and sharp curves. But that is what the new economy is all about, he maintains--companies attacking the status quo and entrenched players, companies experimenting to find new technologies that improve or replace earlier ones. Such activity presents no cause for alarm. The economic, social, and cultural factors undergirding the new economy are rock solid. It's simply a matter of letting them stand.

An online wedding resource company is seeking an equity investment to grow the business.

Amazon.com, an early pioneer in electronic commerce, prepares its initial public offering in the face of turbulent market conditions. Joy Covey, Amazon.com's CFO and the case protagonist, discusses the risks and opportunities of going public and the nature of electronic commerce business models in comparison to traditional land-based retail models. This case presents an opportunity to discuss the public offering process and the inter-relationship between a young company's financing strategy and business strategy.

Preview Travel was a leader in the online travel industry, having generated $80 million in bookings in 1997 and growing at a 34% compound annual growth rate per quarter. This case describes the evolution of Preview Travel's business plan and financing strategy and highlights a financial turning point that the company faced in August 1997. In August 1997, the company was in need of an additional cash infusion and had received strong indications of interest from a major U.S. media company. However, Preview Travel was disappointed with the offer the media company eventually made--$4.50 a share--since it was significantly less than the Series E round a year earlier ($9.00 a share). An investment bank advising Preview Travel believed that Preview Travel could garner a higher valuation in the public market and recommended that the company consider an IPO as an alternative means of raising capital. However, there were risks to this strategy. Closes with the question of whether Preview Travel should accept the "sure" but low offer from the media company or pursue an accelerated and potentially risky IPO.

Supplements the (A) case.

Kent Dauten, a former general partner at the Chicago private equity firm of Madison Dearborn Partners, has engaged in a search to personally sponsor a buyout in which he can play an active management role. He has received a selling memorandum for Record Masters, a records storage company providing management and retrieval services for active medical records to health care institutions. The case presents excerpts from the selling memorandum and asks students to assess the attractiveness of the opportunity, key risks, valuation, and deal structuring.

Himscorp is an industry consolidation of records storage companies providing management and retrieval services of active medical records to healthcare institutions. Kent Dauten, a former general partner at Madison Dearborn Partners with 15 years of venture capital and buyout experience, has personally sponsored the industry consolidation and is considering whether to invest in growth, sell to a strategic buyer, or pursue an initial public offering. This case presents an opportunity to discuss the process of a roll-up and the sources of value creation.

The Beta Group is a technology incubator in Menlo Park, CA that has successfully built a portfolio of businesses in the medical, consumer products, and industrial technology sectors by systematically matching proprietary technologies to unmet market needs. Beta has developed a new golf club technology that allows golfers to reduce the dispersion of miss-hit golf balls. The case addresses questions of strategy and finance as Beta considers its options to commercialize the technology. Also presents an opportunity to discuss Beta's unique investment approach.

Describes a recent Berkeley MBA's attempts to start a business aimed at corporate training via the Internet. Describes the very early efforts at finding an attorney, accountant, and financing, and the interrelationships among these choices.

The founders of Nantucket Nectars are trying to decide whether to sell their company. The case describes how the founders started the company and grew the Nantucket Nectars brand name.

Spreadsheet supplement for case 898-171.

An Internet start-up company is developing an online marketplace for specialty chemicals and reagents. David Perry has been named a runner-up in the 1st annual HBS Business Plan contest and now faces seed-stage financing questions--how much money to raise, at what valuation, in how many stages, and from whom.

A new service is being developed to help investor-relations managers at public companies communicate with investors over the Internet.

The efforts of two recent Harvard Business School graduates to start a venture capital/consulting firm focused on opportunities related to the Internet are recounted. Raises the question of what the nature of this opportunity is, how well-positioned the protagonists are to pursue it, and what the deal structure should be.

Every seasoned investor knows that detailed financial projections for a new company are an act of imagination. Nevertheless, most business plans pour far too much ink on the numbers--and far too little on the information that really matters. Why? William Sahlman suggests that a great business plan is one that focuses on a series of questions. These questions relate to the four factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. A great business plan is not easy to compose, Sahlman acknowledges, largely because most entrepreneurs are wild-eyed optimists. But one that asks the right questions is a powerful tool. A better deal, not to mention a better shot at success, awaits entrepreneurs who use it.

A framework for assessing new business opportunities and the business plans used to describe them is developed. Useful for aspiring entrepreneurs in MBA programs.

Bob Hellman, a partner in a West Coast middle-market buyout firm, is attempting to simultaneously acquire and merge three disparate firms in the rapidly consolidating telemarketing services industry. Hellman must value the individual companies as well as the combined entity, structure a deal that is attractive to each party, and evaluate the prospects for the combined entity while developing a plan of action to more fully develop the deal.

A view of career management for people interested in starting or playing a major role in an entrepreneurial venture is presented.

John Hansen, CEO of ThermoLase, must develop a plan of action to exploit the company's new development-stage revolutionary hair removal technology with negligible revenues and a $500 million market capitalization. This nascent public Thermo Electron spin out company has the opportunity to change the U.S. beauty industry if Hansen can develop and execute an effective rollout strategy. Teachng Purpose: To introduce students to the Thermo Electron development strategy in the context of a high-potential, development-stage, retail/consumer-oriented business.

Two former consultants have raised a search fund and are looking for a company to buy and run. After eight months of looking at deals, they have just signed a letter of intent to buy the second largest book retail chain in Canada in a turnaround situation. They must now decide whether to go through with the deal and, if so, how to raise the necessary financing.