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Wednesday, May 25, 2022

INTERNET—Ailing Firms Choose to Pull Plug Rather Than Burn Out

As the New Economy continues its shakeout, startup euthanasia is on the rise. Increasingly, dot-com managers and their financial backers are opting to shut down operations earlier to ensure there’s enough money left to pay off creditors and avoid bankruptcy.

Pulling the plug early, of course, runs the risk of killing off a promising business that, given more time, could have been a winner. But it’s happening with increasing frequency in Los Angeles, industry observers said. Among the local companies recently calling it quits with money in the bank are BizBuyer.com and Z.com.

“Many dot-com companies realize that their opportunity to take their company public is not going to happen in the next two to eight months, so with only $5 million in the bank, for example, they decide it would be better to shut down than to continue operating,” said Chris Woolley, managing director for Imperial Bank’s emerging growth division.

Woolley characterized such moves as a responsible business decision especially at a time when many dot-com companies have crashed and burned.

“We will continue to work with these firms on future projects because they could have stuck it to the bank and didn’t,” he said.

As for the startups, their options have become very limited since venture capitalists are shunning almost all prospects except those with very clear, short paths to profitability.

Realizing the funding spigot is unlikely to reopen any time soon, startups are shutting down rather than exhausting every red cent.

“In our case, there was a modest amount of capital available but it only would have allowed us to survive for a couple of months,” said Joe DiNunzio, chief executive of Z.com. “With not enough money coming in to allow us to be successful in the long run, we decided to shut down the company.”

Z.com is in the process of selling its assets to pay about $1 million in debts and distribute any remaining cash to shareholders.

“Since July, I’ve been pounding the pavement looking for customers and investors,” said DiNunzio. “There was little question in my mind that we couldn’t continue operating the company.”

The Burbank-based company was launched last year and its site had attracted as many as 750,000 visitors a month to view its short films and animations that were aimed at a teen-age audience.

Z.com’s founding investors included Idealab, film producer Jerry Bruckheimer and Guy Oseary, chief executive of Maverick Records.

In the case of BizBuyer.com, it had $35 million in cash but returned that to investors after realizing the company couldn’t reach profitability with its existing resources. The Santa Monica-based company shut its doors in December.

CMGI Inc., Redpoint Ventures and Intel Capital, the strategic venture capital arm of Intel Corp., among others, had backed the company.

“At some point, the market was going to tighten, which is what has happened,” said Imperial Bank’s Woolley. “The tightening has washed out a lot of bad money and companies. There were also some good companies that were affected by market conditions.”

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