FD profile: Mean streets

As Bryan Levine, FD at, the internet-based news service for investors, learned last week, your business plan may be as robust as a Chieftain tank, but when your major backer decides it has other priorities and changes its strategy to conserve cash, things can go wrong very quickly.

It is perhaps a measure of how well things were going at the The Street that when Levine and managing director Claudia Jay finally announced on Wednesday to staff that it was to close, they were met with a round of applause.

TheStreet was doing well, there was no doubt about that. Of all the dot.coms around it was one of the most promising and the deals were beginning to come through that would in any other circumstances, have helped seal the company’s future.

‘It’s the most bizarre thing. Two of the largest financial institutions in the land agreed to do deals with us yesterday,’ says Levine, the day after news broke of the company’s closure.

‘They phoned in the morning to say they’d do deals we had been searching really hard to get. That suddenly came through yesterday. We delivered everything.’ He adds: ‘We were starting to get into our serious revenue model.’

But it was not to be for Levine at the The Street. While the UK company was performing to plan, US parent, TheStreet. com had seen the value of its shares plummet as confidence in tech shares suffered. The company shrank to a market value of $80m, ten million less than it had in the bank, from a former value of around $600m.

The company’s CEO had promised profitability and, after protracted negotiations with investors in the UK to settle the share structure for second round funding, the US outfit finally decided it had to cut its losses. Investors are said to have found it impossible to come to an agreement with the parent company, circumstances that prompted them to say they were pulling out.

By all accounts it is more expensive in the short term to close down the UK outfit, but the US parent was looking to the next two years and felt that it could no longer bear taking multimillion pound hits.

On the up

As for things were on the up. Optimism was high and the future was looking bright. The parent company’s decision came as a surprise and ‘a real disappointment’. But the original business plan, earlier described by Levine as robust and ‘not in cloud cuckoo land,’ was holding firm and delivering.

‘We die as a business with some interesting metrics. We die with money in the bank; we die with 180,000 registered users and increasing. We have an average of four to five million page views every month; we have talented people,’ says Levine who is clearly a little shaken by the whole experience.

In fact the figures make interesting reading bearing in mind this is a that’s just been put out of business.

The Street began life with a nest egg of £10.6m and was expected to lose £10.9m by the end of its first year. Levine says that in fact the company would have come in under £10m. Interestingly, despite a burn rate of £350,000 per month, with £1.5m in the launch month, The Street will be wound-up solvent with £1.2m in the bank. Revenue for the year was also on target and would have reached £2.2m. Revenue for next year was expected to top £4m.

A loss of £10m may look shocking on the face of it, but it was planned for and Levine was confident that next year the loss would have dropped to between £5m and £8m. Some time in 2002, he says, the company would have moved into profitability.

With revenue on the up one small comfort Levine draws from the whole experience is that the advertising model, which many commentators thought unviable, was beginning to pay off.

‘The weirdest thing, as we told the staff, is that it’s as confusing to the senior management as it is to everyone else as to why we had to close down,’ says Levine.

‘However I’m quite pragmatic and philosophical about the business,’ he adds.

It was Sunday night when Levine and MD Claudia Jay discovered something was wrong. The following week was spent negotiating redundancy deals and putting in place the structure for winding up the company.

At the end of the day it looks like the plug was pulled because the US parents had to respond to shareholder pressure and promises to produce profit. A telling tale about what might be expected when putting together a with a publicly quoted parent company. ‘It is an albatross to have shareholders who want returns. However, the landscape was very different when they started this business. frenzy

‘ frenzy was at its height and people were saying, don’t worry about profitability, the key issue is buying market share. There was complete and absolute insanity. Something we never bought into here. We spent £3m on marketing not £20m. ‘But suddenly in April or May people saw it doesn’t really work. Suddenly stock prices crashed, the money got nervous in the market place and people started to “ask will these business ever make us any money?” And they all suddenly panicked.

‘From saying go off and grow a business, they said we really need to focus on getting businesses to profitability and with normal business metrics. And you could sense our parents suddenly saying we now have to strive for profitability, and its made it difficult for them and difficult for us, but it is market conditions and sentiment that has affected everyone in the States,’ says Levine.

Behind The Street has been a complex funding structure with a quoted company in partnership with venture capitalists, a structure that clearly presented its own problems and, in retrospect, could have been dealt with differently.

Levine cites the situation where five venture capitalists, all with their own respective requirements and criteria, attempted to negotiate with a major backer with an entire different set of needs.

In the end not a happy recipe but Levine returns to the theme that it was ‘market conditions and a change in focus’ that finally brought about the end.

In all honesty you can’t help but believe Levine when he says the business could not have been run any better than it was. As dot.coms go The Street in the UK seemed to be performing better than most.

But he would have done a couple of things differently, especially that important step before the company actually begins trading of setting up the funding. Better to have all the cash in place up front than look for second and, perhaps, third round boosts to the bank balance.

‘I would have looked for enough funding to take it to cash generation,’ he says. ‘That gives you a different focus in the business as well. You then know you’ve got to get their in that time frame. When the money was raised, people were just having punts. I remember someone just saying to me “oh we’ve just chucked a million into Boo”.

Robust plan

‘In my view get a robust plan, that you know is going to work. Make sure you can always over deliver it. And make sure, if possible, you find an investor who has enough confidence in you to fund that through to profitability,’ Levine advises.

Ask him what happens next and he says he’ll be OK, he’ll spend more time with his family at Christmas than he expected, but will spend the next couple of months winding up the business before moving on.

He gives some indication that there might be something on the horizon but won’t say what exactly. Though there might be plans for the future thoughts are still for the present.

‘I’m disappointed, less so for myself than the people here. The sense of pride in this business was amazing.

‘We’ve been successful, that’s the worst part. There’s nothing that says we were a crowd of idiots. We’ve been very clear that the only way we would be involved in winding down this business is if the people here and our creditors are treated honourably.

‘It’s been sad, but a brilliant experience. No one can say we were a failure. We were a victim of market conditions,’ he says.


So another goes down. The euphoria of earlier this year has now been replaced by a heavy dose of realism, writes Clive Hyman.

Anybody who thought the fundamental laws of economics had changed was and is misguided.

This is, as never before, a time of technological advancement. The pace will, in true Darwinian style, be determined by the organisations who can adapt to the circumstances they find themselves in.

The basics of a successful business remain the same and include an understanding of management, business environment, market and customer experience.

Businesses need to focus on what their particular customer need is, and whether they are willing to pay for it. What is the point of having the best mousetrap in town if no one will pay for it? Good management has always attracted a premium and the kind of management needed to grow businesses is in short supply.

Whether founders or entrepreneurs are prepared to accept this or not – professional funders will only back credible management.

The lessons to be learnt are that the basics need to be in place from the beginning.

This gives the business a solid foundation to grow from.

The difficulty for early stage businesses in a rapidly changing world is that stakeholders themselves may not be able to clearly define all of the requirements, nor will these requirements necessarily remain static.

So moving forward – be hard nosed; remember there are no short cuts; good management and a good sustainable business proposition increases the likelihood of funding. Any weaknesses and no one will lend. Providing entrepreneurs with professional multidisciplinary bandwidth of services giving guidance on business strategy, operational, technological and commercial aspects of the business as well fundraising.

Creating a solid business model is when the real winners will come through.

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