AUSTIN, Texas – With only two days of cash left on-hand drkoop.com Inc. was on life-support and poised to become the latest high-profile dotcom failure, until it was saved with a cash transfusion. At the end of August a group of venture capitalists pumped $27.5 million into the health information Web portal. The publicly traded company, founded in 1998 by former U.S. Surgeon General C. Everett Koop, also received a new management team as the leadership of Prime Ventures LLC, one of drkoop.com’s white knights, took over the management of the struggling company. Dr. Koop himself remains chairman of drkoop.com’s board of directors.
“We looked at the company and found a brand that is extremely valuable. It has trust, integrity and the image of protecting the consumer – things Dr. Koop has spent a lifetime building,” said Edward Cespedes, drkoop.com’s new president, and managing director of Prime Ventures, commenting on why the investor group would resuscitate a failing Internet business in, at best, a lukewarm business environment for business-to-consumer Internet companies. “Just because the press has said the consumer side of Internet plays is dead, does not mean I have to believe it,” he said. Moreover, Cespedes noted drkoop.com derives 30% to 35% of its revenues from business-to-business e-commerce ventures.
ComVest Venture Partners, the VC affiliate of merchant bank, Commonwealth Associates LP, led the most recent round of funding. Eco Associates, Prime Ventures, NetStar Ventures LLC, J.F. Shea Co. Inc.’s venture capital division, Cramer Rosenthal McGlynn, and RMC Capital LLC also participated in the round of funding. Cespedes declined to say how much each of the participants had invested. In exchange for their cash, the investors received convertible preferred stock and collectively took a more than 50% ownership stake in the company, he said. The company went public June 8, 1999, raising $84.4 million. A drkoop.com spokeswoman was unable to provide any information about the company’s previous rounds of venture financing.
Cespedes said the $27.5 million dollars should last the company about 18 months. “We are not going to run out of money,” he said. Cespedes was unsure exactly how drkoop.com would spend the money. “However we invest the money, we will not spend a single dollar without knowing the IRR on that dollar,” he said, adding that going forward the company will focus on sales, content and partnerships, similar to drkoop.com’s agreement to license its content to Shared Medical Systems Corp., a health-care information solutions provider. In order to become a success, drkoop.com must deliver value to its partners, execute better on sales and let the world know the Web site is back in business, he said.
Drkoop.com’s new management team is determined to show they are committed to maximizing shareholder value, he added. To that end, the new management team laid off 42 of drkoop.com’s employees shortly after taking control of the company. The move demonstrated its commitment to turning drkoop.com into a valuable enterprise, he added. The company is now down to 79 full-time employees. Cespedes said there would be no more lay-offs in the company’s future.
Saving A Fallen Angel
Prime Ventures was initially approached to invest in drkoop.com by the company’s lead investor, Commonwealth Associates. Prime turned the opportunity down – as it had several other opportunities to attempt to breathe new life into fallen angel dotcoms, Cespedes said. However, the firm decided to look into drkoop.com after one of its limited partners, who was also an investor in drkoop.com, encouraged the VC firm to invest in the Web portal. Prime Ventures, which has amassed a portfolio of 15 companies, will not make any further venture investments now that its has committed to running drkoop.com, he added.
“We felt that this was such a big opportunity and that they [drkoop.com] needed our full commitment,” Cespedes said, adding he and his fellow executives have signed three-year contracts with drkoop.com. Based in Santa Monica, Calif., Prime Ventures was founded by Richard Rosenblatt in March to invest in early-stage Internet companies. Previously, Rosenblatt had co-founded iMall Inc., which was sold in 1999 to Excite@Home for $565 million. He served as Excite@Home’s senior vice president of e-business service prior to launching Prime. Rosenblatt is chairman and chief executive officer of Prime, as well drkoop.com’s new CEO.
Rosenblatt will serve on drkoop.com’s board of directors, as well. The company also announced five new members to its board of directors. The new directors are Edwin Cooperman, former chairman of the Travelers Bank Group, Marshall Geller, a former senior managing director at Bear, Stearns & Co. Inc., Scott Hyten, CEO of Eco Associates, George Vandeman, a former senior vice president of corporate development at Amgen Inc., and Joseph Wynne, chief financial officer at Commonwealth Associates.
Drkoop.com’s new investors are not worried about realizing a positive return on their investment. “We are focused on building the most valuable business possible. If it makes sense to sell the company at some point, we’ll do it – if you build a business, the exit strategy will take care of itself,” he said. “We’ll do what’s best for the company at all times…we are not going anywhere until this thing is right.”