Dotcom babies
Article Date: May 12 2006
Judgment day
The flotation of Lastminute.com on 14 March 2000 amid much controversy over its valuation (nearly £600 million) rang the bell for the top of the London market just a couple of days after the tech-laden Nasdaq index in the States had burst from its bloated maximum and was deflating at an alarming rate. By November 2000, Webmergers.com was able to report one closure a day, 75 per cent of which were business-to-consumer or e-commerce ventures.
‘Somebody woke up one day and said “the Emperor’s wearing no clothes!” and it all fell down with a nasty thud,’ sums up KBC’s Hart.
Businessesforsale.com is one site that managed to extract some of the last vestiges of dotcom hope, with a popular website to link buyers and sellers of businesses. Spun out as a subsidiary of publishing company Dynamis, with Tory MP Francis Maude as chairman, it raised £1.7 million of seed capital from angel investors in February 2000, just as the crescendo of incredulity around Lastminute.com was building.
Chief executive at the time Leigh Nissim says that hints were given to some investors (‘Not by us!’ he insists), that the company would shortly float on AIM and that they would quadruple their money. ‘Then came the crash and everything changed. One week you were the most loved and the next you were the most hated. But we knew growth would take longer than people thought and we believed we’d be successful in the end, so we made sure we didn’t spend all the money!
‘In our situation, which was pretty typical, we believed in our business but once valuations collapsed we had shareholders who felt they were locked in and no one wanted to buy their stake. That wasn’t a huge problem for professionals but for private investors it was really bad news. Our investors created a lot of problems and spent a lot of time shouting! This took management attention away from the business.’
Eventually, directors who had lost interest departed and an experienced, new director was brought in. Within six months the business was profitable.
After the gold rush
After spring 2000, it took a long time for internet companies to re-establish themselves, with fundraising becoming difficult or nigh on impossible, says Hart.
‘The same applies to today’s market: if business owners put themselves in the position of needing further fundraising and then the market changes, they’ll find it difficult. Investors like success stories or potential winners. They’re usually unwilling to invest after your worth has dramatically crashed, as everyone likes to invest in companies and sectors on the up. That’s exactly what happened in 2000 – the music stopped and dotcoms couldn’t raise any more money.’
Seb Bishop and his school friend Daniel Ishag were one such example. ‘We couldn’t have picked a worse time to enter the internet game,’ laments Bishop. ‘It was like learning to ski on ice.’
In early 2000, Bishop and Ishag began a roadshow tour to raise cash for Espotting Media, a company they had formed at the tail end of 1999 to create, according to Bishop, ‘the very first pay-per-click marketing business in Europe.’ But nobody was interested by the time they came a-calling and friends and family were the last resort, providing a £100,000 cash injection.
As it transpired, the newly adopted, market frugality actually benefited Espotting. ‘As the online space went into recession, advertisers saw the advantages to our model. After we signed AskJeeves in 2001 we started to see a big adoption, with Lycos,
then Yahoo! and AltaVista all signing up. And later that year we got £5.5 million of venture capital with Beringea as a lead investor.’
So, by the time Nasdaq-listed marketing services provider FindWhat.com agreed to buy Espotting for $186 million in late 2003, their online venture was dealing with more than
850 million queries a month. The conglomerate then changed its name to MIVA to incorporate the various other businesses it had bought.
‘We were valued more or less on a par with traditional bricks-and-mortar businesses,’ insists Bishop, now a director and chief marketing officer of the enlarged group. ‘We were profitable and our turnover was more than $120 million.’
However, by comparison, US competitor Goto.com devised the pay-for-performance advertising concept and floated in 1999 – ‘We weren’t aware of it at the time,’ admits Bishop – and changed its name to Overture before it was sold to one of its biggest customers, Yahoo!, for $1.6 billion in early 2003. ‘So, we could have got a bigger deal if we’d been earlier and launched in the US,’ observes Bishop, with a little regret.
