RealTime IT News

Drkoop.com: Getting a Heart Transplant

Early this week, Drkoop.com was about to be declared dead. Chances were that you had more money in your wallet than Drkoop.com had in its bank account.

But Drkoop.com's luck has suddenly changed. Venture capital investors Prime Ventures, JF Shea Ventures, Cramer-Rosenthal-McGlynn and RMC Capital were willing to provide life saving measures; that is, the firms ponied-up $20 million in a cash infusion. If certain conditions are met, the amount may be as much as $27.5 million. Of course, the VCs negotiated a favorable deal. They get convertible preferred stock at 35 cents per share.

But when a company is in desperation, there is very little negotiating power.

In the deal, the VCs basically get control of the company. Executives from Prime Ventures will replace three existing executives from Drkoop.com. The new CEO will be Richard Rosenblatt, who was the CEO and co-founder of iMall.com, which was acquired by Excite@Home for $565 million.

It is not surprising, though, that Drkoop.com is the subject of three shareholder lawsuits. What's more, the Securities and Exchange Commission has launched an informal investigation.

However, the VCs that invested in Drkoop.com have most likely conducted extensive due diligence of their investment and obviously do not see the legal situation as a deal killer.

Rather, the huge challenge for Drkoop.com is to take swift action to stabilize the company. Expenses need to be reduced substantially and there must be a clearly articulated business model. Relying heavily on advertising revenues does not make sense.

Drkoop.com's stock was as high as $45-3/4 last year. Now, the stock is at $1-1/8. The market cap is $39 million. However, the company's new VCs are willing to bet a substantial sum on the company and there is a new management team that has faith it can turn things around. If it works, the rewards will definitely be great. But beware: This company is still in critical condition. Rehabilitation will likely take a long time.