It’s a pretty simple calculation: There’s the money you have, the money you earn and the money you spend. When the money you spend exceeds the first two figures and looks to indefinitely that spells trouble.
It may seem a fairly obvious bit of math, but despite the lessons of the past year, it doesn’t seem to be one that’s sinking in for a lot of tech companies.
Barron’s has done everyone the service of listing all those companies that weren’t paying attention in class, and a few local Internet companies ranked conspicuously high on its list of “Burn Victims,” published on Jan. 8.
The study, conducted for the magazine by Pegasus Research International, ranks publicly traded Internet companies, rather morbidly, in order of months to survive based on their performance during the third quarter ended Sept. 30.
“We’re seeing the financial pressure intensify,” said Greg Kyle, Pegasus’ president. “If a company is at risk of running out of cash in less than 12 months, then the company is facing intense pressure to change that rate, whether it’s through raising financial capital or lowering operating expenses.”
In a time of dot-wariness in the investment community, the study can be a useful tool for avoiding high risk.
GenesisIntermedia.com Inc., the Van Nuys-based marketing company that operates networked “Centerlinq” kiosks in malls, placed 18th on the list and is expected to burn through its cash in just over six months, according to the study.
Genesis made headlines recently when it offered $52.5 million in cash and stock to buy New York-based fashion portal Fashionmall.com.
Genesis had only $1.57 million in cash on hand during the third quarter and burned through $1.3 million.
“That word ‘burn’ is a misnomer,” said Rob Bleckman, director of investor relations for Genesis. “We’re putting the cash to good use to create value for our shareholders.”
Cash intensive investments in the firm’s Centerlinq kiosks, which offer discounts to consumers and consumer databases to retailers, accounted for the spending, according to Bleckman. The networked kiosks are being installed in major national markets but are not yet generating significant revenues.
Genesis has been “trimming the fat” and offering a private placement of stock to build cash reserves and has no intention of burning out in six months, said Bleckman.
Another local burn victim is Santa Monica-based Launch Media Inc. Launch, which operates a music portal where users can download music and access music news, is projected by the Pegasus study to have just over seven months to go before running out of cash. The study estimated that the firm had about $29 million in cash on hand and had a burn rate of $8.5 million during the third quarter.
Launch stock hit its 52-week low when it closed at $1.50 a share on the day the study was released.
According to a spokeswoman, Launch management was too busy with meetings to conduct an interview. Maybe they’re schmoozing with a potential suitor?
Counter Intuitive
It’s a good time to start up a startup in L.A.
That’s the unlikely message from Guy Kawasaki, CEO of Garage.com, the Silicon Valley-based “venture capital investment bank.” Kawasaki, author of several books on marketing and the Internet economy, is so confident in the L.A. tech economy that he’s bringing his “Bootcamp for Start-Ups” workshops here in early February.
Kawasaki was Apple Computer Inc.’s original “evangelist” whose mission was to persuade the era’s skeptical software developers to create computer programs for the company’s then-nascent Macintosh.
His Garage.com provides funding services for high-tech and life sciences startups.
Kawasaki said he expects between 300 and 500 people to sign up for the two-day bootcamp, which costs around $900 per person.
“If you’re an entrepreneur, it’s always a good time to start a company,” Kawasaki said. “A good company will always get funded.”
However, there have been some lessons learned from the last year.
“There is a much greater requirement for a complete and experienced management team, intellectual property that is protected and some real technology,” Kawasaki said. “A cute idea and a cute domain name don’t make it anymore. You need some real science, some software or some algorithm.”
Kawasaki, who takes his bootcamps on the road after L.A., said Southern California is an ideal locale for his traveling startup show.
“There is a lot of technology being created in the L:A. and a lot of entrepreneurs and investors who are undaunted by today’s market,” he said.
Dynamic Investment
DynamicsDirect Inc., a West Hills firm that specializes in online advertising, was the surprising recipient of $12.5 million in venture funding last week. Why would a provider of online advertising attract VC funding during an industry-wide advertising slowdown and a dot-com shakeout?
DynamicsDirect uses the most popular and fastest growing component of the Internet to deliver its personalized marketing: e-mail.
“E-mail is the one online arena that has worked effectively for advertising, and it’s the fastest growing place for online advertising dollars,” said Russ Gillam, the firm’s bullish CEO.
DynamicsDirect takes databases from clients like MCI, Sprint and American Express and sends personalized, rich media content to customers. Rich media uses Flash technology, which allows Web developers to create animated, audio-enhanced clips that can be downloaded easily over a standard dial-up Internet connection. The technology also lets advertisers create more interactive ads with pull-down menus and other navigation features. The ads can be tailored to the recipient, depending on the information stored in the database.
Gillam left the relative security of Walt Disney Co. last March he’d been in charge of Disney Direct, the company’s 1,000-employee catalog and direct mail operation to take the helm of DynamicsDirect.
“I’m a big believer in the personalization of rich media,” Gillam said when asked why he jumped ship. “There’s a real opportunity to capture significant market share in an exploding marketplace.”
Despite the ongoing slowdown, Jupiter Research estimates that advertisers will spend $7.3 billion on online advertising in 2001. Those funds could increasingly end up in the hands of e-mail marketers, who appear to be breathing life into ailing online advertising.
Staff reporter Hans Ibold can be reached at [email protected].
