Where did it go wrong for Clickmango.com?

At F****dCompany.com, the news that online health retailer Clickmango.com may wind down its business in the absence of funding was greeted with glee.

‘They’re going down faster than Monica Lewinsky,’ crowed one observer as Clickmango’s notorious inflatable pink boardroom was sold to a Japanese collector. But Toby Rowland, Clickmango’s founder and chief operating officer, has news for those eager to write off his business. ‘We haven’t thrown in the towel yet,’ he said.

Still, the outlook is bleak. Since April, when the company began looking for £10m to fund international expansion, Clickmango has been turned down by 75 potential investors, and suffered the humiliation of being refused a £300,000 loan by its lead investor. The company has enough cash to survive for just six more weeks.

So where did it all go wrong? Last October, Clickmango secured £3m venture capital in eight days from Rothschild and Atlas Venture. Eighty staff were recruited from companies including Oracle, Disney and AOL, and actress Joanna Lumley was roped in as spokeswoman.

Costs were modest, with just £250,000 spent on marketing. The company focused on cheaper partnerships, including a recently- signed agreement with Hotmail.

The web site cost less than £1m to set up, while running costs were down to £100,000 per month – a burn rate five times that sum is not unusual. Weekly sales were £2,000 and growing at 20%, while the bank balance was a healthy six figures. Good – but not enough.

‘I can’t help thinking it’s all about timing,’ said Rowland last week, his voice hoarse from phone calls with bankers, partners and customers.

‘We timed it wrong, and I don’t think we’re the only ones.’

Rowland is right, says Matthew Nordan, director of European research at Forrester. ‘We’re going to see the trickle of dot com failures become a floodgate,’ he warns. ‘The climate is much tougher, and companies have to offer something not just good, but unique.’

A report by PricewaterhouseCoopers earlier this year suggested that as many as 60% of UK dot coms would require additional financing before the end of the year. If Clickmango’s example is anything to go by, those companies will find it hard.

Rowland’s problems started when technology stocks crashed in April. Investor sentiment began to turn against business-to-consumer (B2C) startups, and was hardened by the collapse of boo.com in May. ‘That’s when we made our mistake,’ Rowland says. ‘We waited until the service had launched before looking for funding, but the market had crashed, and it was very difficult to find investors.’

In the following weeks, Rowland learned a painful lesson. ‘The venture capitalists and investors are only interested for as long as they see a fast financial exit – I understand that much better now.’

With the value of US sites such as Mother Nature and PlanetRX collapsing, investors were wary of companies with poor flotation prospects.

‘We didn’t see that a loan would help them raise the finance needed to build the business,’ says Rob Zegelaar, senior principal with Atlas. In other words, Atlas didn’t believe that Clickmango would raise capital for a sale or IPO – and so cut its losses.

Other B2C companies have been more fortunate. Competing health site Thinknatural raised £6m in capital weeks before the market crash. ‘It’s valued at five times more than US companies generating millions of dollars,’ says Rowland. ‘It’s untenable, but it gave it a platform to get more investment.’ Thinknatural has since signed partnerships with Kingfisher Group, which will see its products in Superdrug stores, and Zoom.co.uk, the online arm of retail group Arcadia.

Kizoom.com, which offers wireless transport information, was turned down for £5m venture capital in May. The company was lucky to find £500,000 from private investors, which kept it afloat long enough to sign an exclusive deal with Railtrack. ‘Venture capitalists didn’t want to know, and didn’t believe we could get partnerships,’ says Damian Bown, Kizoom’s founder and chief executive. Today, Kizoom has access to 500,000 Railtrack customers every month, and plans to approach the venture capitalists again later in the year.

Without capital, Clickmango was unable to attract similar partnerships, despite five weeks of negotiations with High Street giant Boots. ‘Even bricks-and-mortar investors watch the markets closely, because they like to think that they have the option to run the business or to IPO it,’ says Rowland.

While bricks-and-mortar companies sit back and enjoy the Schadenfreude of it all, Rowland believes people are missing the point. ‘No one can say the business didn’t work,’ he says. ‘We were only given three months to prove it.’

In these tough times for dot coms, it’s easy to forget that many companies are making a roaring success of web ventures. AOL’s quarterly cash flow is more than $1bn, and Amazon’s run rate is more than twice that.

But it’s not surprising that these successes come as many dot coms slide towards ruin.

It seems revolutions must always consume their earliest, most passionate advocates.

CLICKMANGO – The rise and fall

June 1999: Robert Norton, former head of ecommerce for AOL UK and Toby Rowland, head of datamining at Disney, conceive a natural health site

October 1999: The two 30-year-olds secure 3500,000 from Rothschild Capital and £2.5 million from Atlas Venture

November 1999: The company moves from its one-room office in the East End to London’s fashionable Brick Lane. Rowland negotiates rent reduction

December 1999: Rowland hires a Feng Shui consultant for the office – who positions his desk facing the wall. Norton pays an undisclosed amount for an inflatable pink and green boardroom

January 2000: Actress Joanna Lumley helps Clickmango launch (pictured) in the UK and France, with 80 employees

April 2000: With £1m in the bank, Clickmango begins negotiations for a second round of funding of £10m. Existing investors decline to take part

May 2000: Norton devotes himself full-time to fundraising, while Rowland runs the business, which signs its 900th supplier

June 2000: The company closes its French operation, and approaches Atlas Venture for a £300,000 bridging loan

July 2000: The bridging loan is refused. Clickmango enters into negotiations with Boots. The firm says it will stay open until at least September.

This article first appeared in Computing magazine.

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