The collapse of clothing retailer boo.com and news provider Net Imperative has sent tremors through the dot.com world and raised questions about the strength of financial controls in the new economy.
When two Swedes, former model Kajsa Leander and chief executive Ernst Malmsten set up boo.com, it managed to raise $135m, making it one of the best-funded business-to-consumer dot.coms in Europe.
But from the outset the company was plagued with problems. The hi-tech website that was to allow the company to sell in 18 international markets was five months late and when it did finally go live, it was criticised for being too slow.
The site soon became an easy target for dot.com critics who mocked the clothing styles and the decision to locate the customer support team in Carnaby Street. The company spent six months in search of a financial director and when they did get one – Dean Hawkins from Adidas – he left after only two months.
This dealt a blow to boo’s financial credibility which proved to be their undoing. When the recent application for a further $30m of funds became public, extravagant stories detailing champagne, Concorde and caviar lifestyles began to emerge.
Liquidators at KPMG have refused to comment on suggestions of weakness in financial management and controls insisting they were concerned with finding a buyer as quickly as possible.
‘We are seeking to sell the business in whole or possibly to constituent parts,’ said Mick McLoughlin, a corporate recovery partner at KPMG.
Shortly before news of boo’s demise broke, professional services firm PricewaterhouseCoopers had warned that dot.coms were in danger of running out of money because of unsustainable cash burn rates.
The research confirmed fears that the sector has been spending money at such a high rate that many companies will run short of funds well before their proposed break-even points.
Liquidator Kroll Buchler Phillips has been called in to Net Imperative after it failed to raise further funds from shareholders to keep the six month-old company afloat. A creditors’ meeting has been called for 14 June.
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