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The case presents a summary history of the electronic messaging industry and depicts the challenges faced by the founders of Hotmail Corporation as they embarked on start-up and growth. Hotmail''s entrepreneurs first developed a generic database product but could not attract venture capital. Frustrated by their inability to exchange private e-mails at work, they developed the concept of Hotmail - a web-based electronic messaging system that attracted subscribers at an unprecedented rate. Within a few years the venture was valued at an unprecedented level and was acquired by Microsoft. The teaching note presents issues in entrepreneurship, innovation and the growth of Internet-based activity. Strategic and marketing issues are introduced, showing how a new business model was developed as a problem-solving process featuring viral marketing. The case highlights the role of innovative venture capitalists and the reasons why a successful high-tech venture is an attractive acquisition target. This case contains colour exhibits.