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Study: Dot-Com Shutdowns Are Accelerating

Written By

Nov 16, 2000

It is no secret that the e-commerce arena has a virtual cloud over its head.
Since January, 130 Internet companies have shut their doors.

The situation has darkened in recent weeks. Since October, the industry
has seen the demise of 45 online operations, including such operations as
pets.com, mothernature.com. mortgage.com, cyberhomes.com, furniture.com and
garden.com.

With the holiday buying season fast approaching, Webmergers.com Thursday
released a study questioning why some of these firms are choosing to fold
rather than proceed without adequate resources.

As part of its research, Webmergers.com asked merger and acquisition
specialists to explain why so many Internet companies have shut down without
finding merger partners, even at fire-sale prices.

Here are some of the explanations:

There’s no there there: Some Internet companies simply don’t
have a
sustainable business model, others simply have not yet built up assets of
value such as a strong team, proprietary technology, customer lists,
intellectual property, brand or domain names or other assets

The company put all its eggs in the funding basket: Many of the
failed
companies were expecting second- or third-round funding that appeared to be
just around the corner. By the time they realized their investors had fled,
they were already facing shutdown

They waited too long: Some companies began trying to sell
themselves after
cash began to run out. In that desperate condition, they lost all leverage
with buyers and any ability to hire a good intermediary

VCs don’t have time to play matchmaker: Venture capitalists and
incubators
are currently overwhelmed with simply tending to the basic needs of their
portfolios. They don?t currently have resources for the time-consuming
business of shopping a company. In some cases it?s just easier for them
just to shut it down

Buyers no longer need to “buy talent”: The Internet explosion
has caused
the rapid education of thousands of technical and marketing professionals.
With a much larger employee base to choose from, acquirers find it less
necessary to buy companies just to obtain scarce Internet expertise

Bricks and mortar companies are sitting on the sidelines:
According to a
previous Webmergers report, non-Internet companies accounted for
only 9 percent of total dollars spent to acquire Internet destinations in
Q2. As one analyst said, “It might be just more fun for bricks and mortar
companies to watch these dot-coms die”

Tip: Most advisors recommended that a merger-and-acqusition
strategy be implemented early on while cash is plentiful ? if not with the
very first draft of the business plan. For example, Chase H&Q last week
recently put Evite, the online invitations company, on the auction block
while Evite still had $17 million in cash

In compiling data, Webmergers.com also came up with the following
statistics:

High-technology corridors naturally bore the brunt of the
shakeout: Nearly
35 percent of shutdowns were in the state of California. New York accounted
for 11 percent
of the implosions and European companies made up 8 percent of the total
E-commerce sectors saw the highest shutdown: Closings are broken
down to show 74 companies were e-commerce, 31 were content, 13 were service
and 12 were infrastructure
Consumer sites are shutting down more quickly: Ninety-eight of
the sites that were closed were geared toward consumers, 26 toward
business/professional and six to a general audience

Webmergers compiled its shutdown data from more than 50 public and
private
news and information sources. The study includes any Internet unit that has
ceased operations and is either liquidating the company, seeking a buyer or
attempting to reorganize through bankruptcy or some other means.

The San Francisco-based company provides research and services for buyers
and sellers o

f
Internet properties. To assist with the ongoing Web fallout, Webmergers.com
noted that it will soon offer an online “marketplace” for developed Web
sites.

Study: Dot-Com Shutdowns Are Accelerating

Carol King

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