Things are getting ugly for some of the Internet’s most prominent companies.
I’m not talking about layoffs or losses, either, though there’s plenty of both to go around. I’m talking about rumors, the kind that do the most damage because they carry with them the ring of truth.
Less than two weeks ago it was struggling online e-tailer Amazon.com , which was reported in a German newswire to have filed for Chapter 11 bankruptcy protection. AMZN shares fell 13% the day after the story appeared.
Now it’s CMGI , once touted as an Internet bellwether and veritable one-ticker ‘Net portfolio. On Friday the San Jose Mercury News reported that CMGI’s once-muscular @Ventures venture capital arm has withered away to nothing and run out of money to fund any more start-ups. According to the story, CMGI’s board of directors decided late last month to end funding for @Ventures in order to preserve the parent company’s cash supply.
CMGI denied the report – after, according the the newspaper, repeatedly refusing comment prior to its publication – but it was the kind of “non-denial denial” that leaves room for interpretation.
We may learn more Wednesday, when the company is expected to report its Q2 results and field questions in a conference call. But several aspects of the CMGI story and the company’s reaction make that rumor more immediately plausible than the one involving Amazon.com.
For starters, the German newswire based its Amazon.com report on unnamed “sources outside the U.S.” – not, as noted last week, the best place to get solid information on American bankruptcy filings. In the case of CMGI, the Mercury News quotes by name other venture capitalists who have partnered with @Ventures. There’s nothing equivocal or vague about this Merc quote from Jon Staenberg, of Staenberg Private Capital, which has joined @Ventures in backing two start-ups: “Rather than doing a few deals, they’re saying let’s do no deals. We’ll miss them.”
Secondly, while Lehman Brothers has predicted AMZN would face a credit squeeze later this year, there has been no indication anywhere that the bleeding e-tailer already has reached the point of insolvency. In contrast, CMGI hardly would be the first company to stop investing in Internet start-ups.
Finally, there is the wording of CMGI’s responses to the @Ventures story. Here’s a quote from CMGI CEO David Wetherell in a Friday press release: “The CMGI board has resolved to renew its commitment to @Ventures. We expect to continue making follow-on investments in existing portfolio companies successfully executing on their business plans, as well as a select number of new investments which represent promising opportunities for CMGI.”
Then, in a follow-up story printed on Saturday, the Mercury News quotes CMGI spokesman John Stevens, after being asked whether CMGI was denying the paper’s Friday report: “The (press) release wasn’t specially released in order to deny the report. All we’re saying is that we’re putting out reconfirmation to @Ventures. It’s that simple.”
I tend to think they’re saying much more. We’ll find out soon enough.
