The uncertain future for the dotcom industry has not stopped venture capitalists financing the most promising companies – especially if they are so-called content providers.
Consider Comedy World, a Los Angeles-based entertainment distributor. The distributor said it is no longer "focused on" an IPO, according to chief executive Jody Sherman.
Instead, Comedy World is raising venture capital and recently closed a second round of financing. In all, $20.5 million was raised from Moore Capital Management and Attractor. That more than doubled the company's first funding round of $10 million, which was completed before digital Darwinism penetrated the market.
"The whole content space has fallen out of favor," Sherman said. "Investors now have the luxury of taking their own sweet time. Attracting funding has become a bit more cumbersome."
Competitive Market
Internet companies have found it difficult to distinguish themselves in a competitive market. But a shift is taking place in the dotcom industry. "Our business model is different from a pure-play Web site," Sherman said.
"We're an entertainment company that creates content and distributes it on the Internet," he added. "Our main focus is on distribution to radio stations, as well as to satellite radio."
The company's online-arm ComedyWorld.com accounts for only 30 percent of Comedy World's business, says Sherman. It is the Internet's secondary role, he believes, that will make the company profitable, and in turn attractive to investors. "The whole idea is not to think like an Internet company."
Despite that pure Internet-skeptical approach – an approach that convinced
Moore partner Jim Caccavo to invest in Comedy World – Sherman is optimistic about the future of the dotcom industry.
"The reality is that somebody is going to have to fill up the pipes being built," he said. "The difficult part is picking a winning content company. A lot depends upon the fickle nature of the consumer."
Comedy World is just one example of a company that piggy-
backs on the Internet and manages to raise capital. It does not exclusively concentrate its business on the Internet. Keen.com, which operates a Web site that allows advice-seekers to connect with advice givers over the phone, recently landed $42 million, bringing its total funding to $109 million.
Net-sourcing solutions provider Intira, received $140 million in October. eLance, a global service marketplace for companies that want to outsource related projects, has raised $65 million in recent months. As entrepreneurs and investors begin to understand not just the Internet's potential, but its limitations, finance will become more available.
Likening the Internet to building a railroad, Caccavo said that if everyone concentrates on laying the tracks and building the cars, there's still an opportunity for someone to fill the cars with cargo.
"As a distribution platform, is the Internet viable? The answer to that is yes, but…,'" he said, trailing off.
Said Sherman, "I don't think consumers rely on any one medium, they rely on all mediums. So this is a money-making opportunity. We're not just in the Internet realm, we aggregate to the largest audience possible."
Customer Bases
Despite the fragile business model of many dotcoms, a lot of them have eaten up traditional customer bases. That has forced brick-and-mortar companies to change how they do business.
While Sherman of Comedy World reaps the benefits of fine-tuning a business model that works on the Web, what happens to the traditional chief executive who managed to do business before point-and-click became a way of conducting transactions?
"Before the Internet, our business was fed through satellites, which had a very high impact at that time," said Ron Benato, chief executive of NewsEdge Corp. (Nasdaq: NEWZ).
Now the Web is the key to NewsEdge's success, although the satellite hasn't been totally disregarded. News Edge bundles thousands of daily headlines for delivery, but adds value by creating a specific news feed for each client based on each client's criteria.
NewsEdge distills information on 1,750 different business topics. Today's NewsEdge was created from a 1998 merger of three companies: Desktop Data Inc., Individual Inc., and ADP/ISS. With the advent of the Internet, satellite news feeds became dated.
"The perception was that business news is available for free and the business awareness is not growing much," Benanto said. "So we decided to join them rather than fight them, and we had a change in focus."
Now daily updates are beamed through the Web as well as through satellites. The updates are sold not just to the corporate entity, but to individual Web operators.
Since May, NewsEdge has sold content feeds to more than 180 sites, like Office.com, and it has distribution relationships with others, such as Plumtree Corp. The company is encouraged by findings from Jupiter Research, estimating the worth of the e-content market at $13 billion.
"It's not hard to redevelop, as long as the redevelopment builds on core assets," Benato said. "But the e-content is still a pretty small percentage of our total revenue. We expect that to grow and that year-over-year revenue will begin to increase in the first quarter of 2001."
With a stock price hovering in the $2 range, NewsEdge is betting the barn on e-content. Given the Internet's dominance, it has to.
The single digit price, Benanto contends, has more to do with a merger that fell through earlier this year with investor unrest over the company itself. NewsEdge also lost analyst coverage, due to the on-off deal.
Colleen O'Connor is associate editor at The IPO Reporter, a sister publication of Traders Magazine.