VC Nightmare Returns To Scare Up Public Investors

They?re back.

Despite being used as Exhibit A in just about every recent discussion of venture-backed dotcom disaster, former online retailer found new life Monday as it was relaunched by publicly-traded The site returns to the Web with an existing brand name and captive audience of young hipsters, but once again will face financial difficulties as is betting on to revive its sagging stock and inject new lifeblood into its other e-tailing efforts.

The original, founded in the summer of 1998 by three Swedes, once had more than $225 million of venture backing. Investors included everyone from traditional players like J.P. Morgan & Co. to European fashionistas like France?s Bernard Arnault, head of LVMH Moet-Hennessy Louis Vuitton, and Italy?s Benetton family. Even before the site launched in November 1999, the company was burning through $70 million a month, spending heavily on branding, advertising and marketing and the creation of its Miss Boo icon. It opened offices in Amsterdam, London, New York, Munich and Stockholm.

While the company initially overcame negative reviews and technical glitches to create significant visibility and traffic, it simply couldn?t overcome what the market would later consider to be a faulty business model. By April, monthly sales had reached $1.1 million but expenses were nearly 10 times that amount, permanently blocking the firm?s path to profitability.

One month later, the company fell into receivership and began liquidating its assets. The final act of the original took place in June when paid between $500,000 to $1 million for domain name, content, trademark and all of its intellectual property.

“We were able to piggyback on [ advertising spending spree],” said Lisa Marsh, director of investor relations with “There?s lots of brand equity built into”

Miss Boo To The Rescue?

Indeed, is betting will save it from a frigid public market reception received long before the Nasdaq stumbled onto rocky shores in March. priced its initial public offering in May of 1999, offering three million shares at $13 a piece and closing the day flat. The stock hit a 52-week high late in November, at $8.25, and has dropped steadily since. In late July of this year, one shareholder liquidated more than 21,000 shares, followed by another?s sale of more than 34,000 shares at the end of August, when the stock bottomed out at $1.75 a share.

With the stock trading at a discount to its cash value, in August itself offered to buy back up to one million shares of common stock over the next 12 months. The timing of the repurchases, the company said, would be dependent on current market conditions and alternative uses of capital. To date, the company has not bought back any of its outstanding common stock.

SiteStar Corp., a food holding company that changed its focus in July of 1999 to an Internet holding company, jumped into the fray just two weeks ago, with an offer to buy all of outstanding stock for $3 a share. The offer has been met with significant skepticism.

More specifically, Chairman and Chief Executive Benjamin Narasin — who himself owns 46% of the company?s stock — said shareholders have been advised to reject the bid because it comes in below the cash value of the company. stock is now trading around $2 a share, down more than 85% from its offer price.

“Ultimately, it doesn?t matter what we do in the short term,” said Narasin said. “Looking back historically, the markets penalized us last year because we were not spending aggressively enough on advertising, marketing or branding, but we?ve built a healthy business which continues to grow. It?s interesting that no one cares, but no one cares because pessimism in the market is so severe.”

Keep On Spending

In spite of the stock?s depressed value, will continue spending to build out its Web properties, even though it spent less than $1 million on advertising for re-launch.

The new is a retail portal, or an online landlord. Since it does not sell anything directly, it will drive revenue by featuring merchants on its site through advertising and site sponsorships. It will also sell demographic information and develop Boo-branded products to sell directly and through its retail partners.

“The ultimate asset on the Web is traffic, and that?s why we bought Boo ? to leverage it against the model we have,” Narasin said. “We?re taking an extremely valuable audience to advertisers and product vendors for an opportunity to get in front of people.”

With offices in London and New York, the company hopes to translate the model across Europe and into the Asian-Pacific rim. When it does, it will look to local partners to develop strategic relationships and for an added equity infusion. For the time being, however, those conversations are on hold.

That is, until the new can convince both consumers and investors it?s not the scary proposition it once was.-