CraftClick.com Inc., a Playa del Rey-based operator of arts-and-crafts Web sites, has been on a wild buying spree, acquiring an astounding 17 Internet sites since January, according to Mergerstat.
But just after that 17th acquisition on Sept. 7, CraftClick's chairman and primary investor resigned mysteriously, sending the firm's aggressive growth plans onto the rocks.
Then-Chairman Russell Murray resigned in late October, just one month after taking the helm and making a two-year financing and operating commitment. Two board members, who were Murray appointees, also left.
Murray couldn't be reached for comment last week. CraftClick president and chief operating officer Sandip Seth said he had no idea why his former boss left without any formal notice. He also said he didn't know where to find Murray.
"I think he's on vacation," Seth said. "We are trying to stabilize things and raise financing."
In a Securities and Exchange Commission filing dated Oct. 23, Murray claims he resigned because CraftClick's financial condition was misrepresented to him. Murray also asserts in the filing that CraftClick could not fund "the anticipated 60-day period of fund-raising necessary to implement his two year commitment "
With its 17 acquisitions, CraftClick.com has been one of the busiest buyers of Internet companies nationwide this year, according to Mergerstat.
Most of its purchases were small online companies devoted to various niches of the arts-and-craft world, such as CraftVille.com, CraftMill.com and ToleNet.
"Our strategy was to acquire all high-traffic portals for arts and crafts, as well as niche arts-and-crafts areas," Seth said. "We were acquiring for stock. That gave us a very low cost of acquisitions."
New leader, new money
One of the acquisitions, online art supplies store Art2Art.com, was a Springfield, Mo.-based company founded by Murray. The site became the biggest revenue generator in the CraftClick network. Soon after the acquisition in February, Murray was appointed vice president of Internet sales of CraftClick and he moved to Los Angeles. In late September, Murray became chairman and "took over control based on his two-year financing commitment," Seth said.
When Murray took control, Seth said he was happy because "we had our financing issue taken care of."
As part of the change of power, CraftClick's CEO at the time, Peter Yollin, resigned along with two other board members.
"Mr. Murray wanted control," Seth said. "It's tough to control without the resignation of the old CEO."
Yollin declined to be interviewed for this story.
Venture Catalyst Inc., a publicly traded company based in San Diego with offices in Los Angeles and Newport Beach, is a disappointed financial backer of CraftClick.
It made three investments in Craftclick.com totaling about $500,000, with the most recent investment made this past spring. The incubator and consulting firm also provided investor relations services to the company until the end of August.
Taking a write-off
In announcing its earnings last week, Venture Catalyst stated that it is writing off its entire investment in the CraftClick.
"We still own the stock, we just don't recognize it as an asset," said Venture Catalyst executive vice president Glenn Smith. "We really don't know what its status is."
Smith added that Venture Catalyst has no intention of providing any more funding to CraftClick, which employs 32 workers in Playa del Rey. CraftClick's stock was trading at 25 cents a share last week, down 86 percent since January.
In an effort to raise funds for CraftClick in September, Murray approached El Segundo-based IdeaForest Inc., another operator of arts-and-crafts sites, to see if the company would buy a stake in CraftClick or some of its assets.
But the company balked.
"If you buy 15 or 20 sites, you've got 15 or 20 brands," said IdeaForest president and CEO Rich Bergsund, who declined Murray's offer. "That's no way to run a business There wasn't anything for us there."
Those views were echoed by Tyler Orion, executive director of the San Diego-based Pacific Incubation Network.
"It was a cute idea when cute ideas were getting funded, but cute ideas aren't getting funded anymore," he said.
Seth declined to comment on CraftClick's next move, given that Murray has withdrawn his two-year financing commitment.
"We are in a quiet period while we negotiate various matters," Seth said. "I cannot discuss where we are going and where we are in terms of financing."
In a previous statement, however, Seth said: "We are working diligently with our creditors to keep the company in existence, through the sale of company assets, including various of our online arts-and-crafts sites, or through the merger with, or acquisition by, another entity."
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