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.
