23 May, 2000
Netimperative couldn't meet cash needs
By Dianne See Morrison
The posting on Netimperative.com's news Web site couldn't have been more postmodern. The top story was about the London-based company's own crushed dreams.
"After six months in life, Netimperative.com is the latest victim of dot-com fallout, and has today announced the commencement of liquidation proceedings, following a board meeting this morning," read the brief story. The company appointed liquidators, Kroll Buchler Phillips, "to assess the situation."
Just days after news broke about the flameout of Boo.com, another European Web company, Netimperative.com's decision to bring in liquidators sent shockwaves through this region's Internet industry. Observers blamed depressed market conditions for the fall, while others cited Europe's weak stomach for cash-burning startups.
Unlike other Internet companies that have gone under, Netimperative.com was thought to have had a good proposition backed by a sensible management team. Backed by investment and research firm Durlacher and by Internet incubator Esouk.com, Netimperative.com's plan was to provide news and analysis of the Internet industry and to provide community and business services to its members. Revenue streams included advertising and sponsorship, and later, were to include fees generated from member services. Its team includes founder Felicia Jackson, a former journalist, and chairman Albert Scardino, a Pulitzer prize-winning journalist.
By several accounts, the company, which was founded in November and launched three months ago, was thought to be on track, hitting milestones investors had set. Trouble began when the company began looking for a second round of funding. Durlacher refused to invest any more money in the startup. Esouk.com's CEO Guy Courtman flatly refused comment on the shutdown. The news calls into question whether or not Europe's love affair with dot-coms is coming to an end.
"I was stunned," says Tim Hammond, CEO of Ideashub, an Internet accelerator. "There is no reason for them not to continue. Netimperative has done its job, unlike Boo.com, which was a travesty."
According to Durlacher, whose shares hit an all-time low on the news, its refusal to fund Netimperative.com shouldn't be linked to what happened to Boo.com. "This is a very specific case," says Jay Marathe, head of consulting at Durlacher. "This should not be seen as a statement of the market."
Durlacher officials refused to discuss specifics about why the company declined to provide additional funding. Some commentators are predicting that more European startups are in for a "second-round funding rout." By comparison, getting seed funding and first-round funding looks a lot easier.
"There's a big difference between a company not getting funding and a business failing," says Mr. Hammond, who predicts problems for other startups seeking funds.
Durlacher invested a relatively modest £570,000 for a 28.5 percent stake in Netimperative.com.
Another company in Durlacher's portfolio is The451.com, an Internet startup covering news of the industry. According to sources close to the company, Netimperative.com executives are said to have been annoyed Durlacher chose to take a 65 percent stake in their competitor. "It was presented to them in a way that didn't make them out to be competitor," says a source. "But clearly it is."
Durlacher officials deny the two companies are competitors. They also deny that the The451.com investment put brakes on additional funding for Netimperative.com. However, Durlacher's Mr. Marathe says he believes The451.com to be "a stronger proposition," emphasizing how The451.com was founded by ex-Financial Times writers, who were "top-tier journalists" providing analysis beyond basic news.
EXCEPTION, NOT THE RULE
Meanwhile, several venture capitalists and incubators downplayed any larger implications tied to Netimperative.com's troubles.
"These are just two businesses," says Mr. Hammond, speaking of Boo.com and Netimperative.com. "Businesses fail every day, even in the U.S. -- no one can have 100 percent strike rate." Mr. Hammond adds he was sure Europe would have its share of success stories. "People like to focus on the negatives," he says. "Rome wasn't built in a day. Just because everything is in Internet time doesn't mean you can create a [profit-generating] business in four months. It's a shame if this does affect new startups."
Shakir Merali, a senior associate at Geocapital Partners, believes that like Boo.com's downfall, Netimperative.com's problems will weed out the weak and the frivolous. "What something like this does is refocus the energy. It clears the market and stops the insane valuations where there are no real business fundamentals underpinning the idea," Mr. Merali says.
Internet companies are taking the news more seriously. For now, startups are keeping a low profile, rather than courting the publicity that helped crash Boo.com. Instead of talking global, they're talking local, hoping to prove the model can work, before setting their ambitions across Europe. Some are even wondering if Europe will be the home of click-and-bricks, shutting out small startups in favor of corporate giants.
"It's pretty scary," says Robert Norton, cofounder of Clickmango.com, a vitamin and health product e-tailer. Mr. Norton thinks investors have grown impatient with the burn rates of startup companies.
"Maybe the startups aren't going to be the winners in Europe after all," Mr. Norton says glumly. Europe won't likely enjoy the same "breadth of new economy" as did the U.S. He says: "It's about survival right now."
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