Case Analysis – Cityspace

College of Business

De La Salle University

FNC6080 – Entrepreneurial Finance

Case Analysis – Cityspace

Gunao, Sabrina

Estimada, Gabrielle

Ang, Stanley Adams

1. Statement of the Problem:

Since its inception in 1995, Cityspace, Inc. has been operating profitably and generating positive cashflow from its operations. In its thrust to expand the business by taking in several new ventures using its proprietary platform, i+, it is in a position to look for additional investment to fund the planned expansion. However, it has been proven difficult for London based Venture Capitalists (VC) to invest in mezzanine financing. It has received close to GBP 880K in investment from NEC (Japan) and Moregroup (USA). The company aims to raise

The company had funding need of GBP 4.0MM in the coming years but its immediate cash need would be around GBP 2.5MM vs. 25 to 30% of the company ownership which the proprietors are willing to provide to potential investor.

1. Objectives:

• Examine its financial condition using projections based on the owner’s estimate.
• Examine different fund-raising options for Cityspace and determine the best course of action.

1. Case Facts

The company was established in 1995 by partners Marc Meyohas, Nick Bohane and Stuart Newman to engage in the development of digital advertisement to be distributed through kiosks located at strategic locations. Target market are tourists which visit London and have little knowledge of what the city can offer. The kiosks would provide vital information on events and listings of tourist spots and restaurants.

The company has reportedly generated positive cashflow from its operations for the past 3 years and have received about GBP 930K in funding from several VCs from 1995 to 1997, 2 of which are offshore companies, NEC and Moregroup.

It had 17 kiosks operation in Q3 1998 and plans to put up more before the end of that year. It’s perceived advantage is the high barrier to entry as they have already started taking prime location for its kiosks and prevent further entrant.

The company provided 2 options for site owners to either pay the installation cost and earn 25% commission from the advertising revenue or let Cityspace shoulder the cost of installation and earn 10 to 15% commission.

It earns income from a “per-view-per-lead” basis wherein the registered advertisers will be paying Cityspace. It charges a minimal amount of about 4 to 18 cents depending on the level of its advertisement. Currently, it recorded an average use of their kiosk at 65 per day per kiosk or about 50,000/mo. For all its kiosks.

The management team is looking to expand into Hotel TV where it will have its listings as well and virtually collect the same amount from the advertisers. Another venture it is looking at is to have its kiosks print movie receipts to be presented to the theaters and Cityspace will charge 15% commission. It also plans to venture into restaurant reservation system wherein the consumer will be charged GBP 2.00 / person and this reservation fee will be deducted from their food bill. The restaurant will in turn remit to Cityspace the same amount as part of its commission.