Re: Predicting which companies are fucked

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From: Linda (
Date: Tue Jun 06 2000 - 20:17:56 PDT

[More on this, from Red Herring. The "life cycle of a start up company"
is a bit different. Of course, Adam, they're referring to internet companies,
not infrastructure start ups ;)


SHOP TALK: Layoffs today mean layoffs tomorrow
By Ken Yamada, June 06, 2000

Get ready Internet industry, more layoffs are coming. Over
the next 6 to 12 months, expect a steady stream of bad news
to flow from Web startups.

As funds dry up, staffs regroup, companies re-position, and
organizations fold, damage control -- not hype -- will be
first priority for corporate barkers. Welcome to a world
where pink slips are a way of life.

Want a guide for judging potential winners and losers? See
below. I've also included a list of recent losers.

What's happened the past two months foretells events of the
coming months. Just look at layoff reports from last week:
Viacom (NYSE: VIA)'s CBS Internet Group (NYSE: CBS), 24
people; ThirdAge Media, 35 people; Load Media, 42 people.
Knocked out -- on Monday, APB Online terminated all 140 of
its employees; and last week, eParties fired all 29 of its

Many Internet companies, who just six months ago looked so
promising, are now scrambling to raise new venture funding,
unable to stop their bleeding losses. They represent a
variety of industries, including retailing, healthcare,
sports, entertainment, and media. If they don't raise
capital soon, they'll either die or suffer crippling blows,
leaving them begging for saviors to buy or merge them.

The dire situation makes for embarrassing moments in dot-com
hype. Publicists for pitched me an interview
last week with executives at the antiques and collectables
Web site, only to withdraw the offer, explaining that they
were trying frantically to raise money. executives
initially scheduled a meeting to talk about their successes,
only to announce they closed shop.

Even as many of these dot-com companies are left to die like
roadkill, new companies and entrepreneurs with clever ideas
are granted life by venture capitalists. It's hard to say
exactly how many new companies are being founded or funded,
but consider this amazing observation: On any given day, Red
Herring editors hear about some fifty young companies
receiving venture capital, including dozens of just-born
companies. With so many new startups, failures can only

Amid so much hype and so little operating history, it's
nearly impossible to judge potential winners and losers. So
here's a simple guide for understanding the lifecycle of a
startup company that may help job seekers, investors,
dot-com employees, and the future unemployed.

Many of the companies presently closing or downsizing last
received funding six months ago or more. Now they're finding
their previously free-spending investors with closed
pocketbooks. Check my rough guide to see how funding affects

Keep in mind that this is only a simple set of guidelines. A
multitude of factors, many of which may be unknown to all
except top management, affect a company's success. The
following is based on my own observations and represent
general rules. See where your company fits, then check my
risk rating.

Conception (0 to 6 months): With a clever idea, founders
approach friends, family members, and business associates
for "seed" capital, which typically amounts to less than a
million dollars, or just enough to rent offices, hire a few
people, buy computers, and begin pitching the company to
big-money investors. Indicators: Management offers small
salaries but big dreams. Risk: Borrowing from loan sharks.

Birth (6 months to 1 year): Founders convince venture
capitalists and others to plunk down serious money for
turning an idea into a real company. First-round funding
typically runs $1 million to $10 million. Indicators:
Massive hiring binge, fancy launch party, rising salaries,
and stock options. Risk: Playing the lottery.

Toddler (1 to 2 years): Still losing money, company seeks
second-round funding, which, if lucky, exceeds first-round
funding. Tough sell, Darwinism in full force. Indicators:
Happy bosses becoming grumpy. Risk: Weekend in Las Vegas.

Learning to walk (2+ years): Must become a real business,
prove profit potential or generate real profits. Probably
will need more funding. Indications: Job becomes work. Risk:
Playing blackjack.

Walking (2-6 years): A believable business model, more or
less. Survival depends on supply and demand, competitors, a
lot more than just investment capital. Indications:
Employees get retirement plan with legs. Risk: Car loan

Standing erect (2-6 years): Initial public offering.
Indications: New SUV in driveway. Risk: Now consider that

Here's a simple list of companies I've compiled whose
employees probably won't soon be thinking about taking out
mortgages. Over the past two months, they've shut down or
fired staff.

Altavista, Babycenter,, CBS Internet Group
(NYSE: CBS),, Great Entertaining, Insweb (Nasdaq:
INSW),, Linuxcare,, Load Media,
Petplace,, Quepasa,, Sony Online
Entertainment, ThirdAge Media, Total Sports, and Turbolinux.

CLOSED,,, Digital Entertainment
Network, eParties,, Red Rocket, Toysmart, and

These lists will grow longer over the next several months.
Who's next? Let me know.

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