College of Business

De La Salle University
FNC6080 Entrepreneurial Finance
Case Analysis Cityspace
Gunao, Sabrina
Estimada, Gabrielle
Ang, Stanley Adams
I. 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.
II. Objectives:
Examine its financial condition using projections based on the owners
estimate.
Examine different fund-raising options for Cityspace and determine the best
course of action.
III. 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. Its 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.
However, in order for the future expansion plans to come into fruition, it would
need additional funding to continue to finance it operation.
IV. Assumptions
Financial Projection

V. Case Proper Analysis

Financial Analysis:
As can be seen in the financial model above, the company has been running
negative income for the past 3 years and will continue to lost money in 1999. Its
capital funding of about GBP 980K has already been depleted due to continuous
need for cash to fund operations. It was only in 1999 wherein they added
platforms in order for the product to be profitable to recover their
expenses and return the capital of the investors. It is only in the 2000s
where Cityspace is expected to recover their investment, and more
time is needed before they start earning an acceptable amount of
revenue to cover operational expenses and income for the investors.
This could possible pose as a problem for the VCs to provide investment funds to
the company to support its expansion. Unless Deloitte could prepare a
comprehensive/detailed business plan with projections for positive
profit in the nearest possible time in order to entice VCs to invest in
the company. The proposed additional platforms, although would need
additional funding, a possible partnership could be established in
delivering the new services. This partnership is not a new concept for
Cityspace as this has been proved successful with NEC wherein they
were able to save in manufacturing costs of the i+ kiosks.
Operational expense has been relatively heavy and has been eating up its thin
gross income. The company is projected to operate profitable in 2000 but its
negative capital position will remain negative as its income is unable to reduce
the losses incurred for the past years.
Business Model:

Growth Strategies

The strategy of Cityspace in terms of growing the company is

introducing new platforms to the current i+ system. The additional
platforms aim to increase the revenue of Cityspace to increase the
value of the company and to encourage companies to invest in i+.

Value Proposition

Cityspace promises its customer the convenience in going around

Europe/London by providing listings for attractions, restaurants,
theatre/cinema schedules and booking. The i+ would be like their
tour guide in an unfamiliar place, without having to contract the
services of one.

Competitive Strategy
The competitive strategy of i+ is that it went beyond the function
of just being an advertising listing for restaurants and
attractions. The content of each kiosk is modified based on the
requirement of the customer and advertisers. The i+ kiosks are
strategically placed in locations with the busiest foot traffic. This
ensures Cityscape that their kiosks are being accessed every so
often.

Market Segments
Value Chain Structure
Revenue Model

VI. Conclusion & Recommendation