Down the Toilet

Any other startup would be lucky to have $2-3 million to burn through each month. Instead failed Web marketeer PowerAgent is suing big, bad EDS for pulling the bait and switch--reneging on a $10 million investment so that it could allegedly pick up the technology pieces of the failed one-to-one marketer after the fall.

Cry us a river. PowerAgent was the biggest, baddest thing going. It out-buzzed Cybergold, DoubleClick and all the advertising/marketing hybrids. The only catch was PowerAgent's laborious survey new users had to fill out, and that it was spending like crazy.

Can you imagine burning through enough cash for Fortune magazine to make $3 million a month estimates and then crying over the fact that EDS wouldn't pump in its $10 million? That would most likely have gotten PowerAgent three month's worth of Diet Cokes, not cash-positive status.
Remember the good old days, say 1996, when companies got $2 million and $3 million rounds of funding that lasted for months? Nowadays you start throwing out those same numbers for monthly burn rates, and people don't even bat an eye. You can hear the whining: It takes big salaries to attract talent; you have to start companies going full-steam, no creating a product then ramping up the company.

Like the full-born Athena springing from Zeus' forehead, there's no such thing as bootstrapping in the glamorous world of today's startups. It's all about being IBM from the get-go.

And then there's the infallibility of the one-to-one marketing concept, just like the air-tight market for pen computers and mobile-computing operating systems. PowerAgent is a big flop in a long series of big flops. The only difference is that PowerAgent's brawny lineup of investors didn't tide over the company before revenues came in. Why stop at $30 million when they could've sunk Go Computer's and General Magic's more hefty numbers? Why did EDS' lone holdout send the company to its grave?

And why is founder Dale Sundby taking EDS to court in a $3.5 billion lawsuit, instead of scraping the remains together and trying again, this time with a smaller budget? Because it can't be done. That's the only excuse, it seems, in the Valley where the business world knocks entrepreneurs on their duffs all day long. The good ones jump back up and take their own push at the market.
But what if Sundby wins his case? What a great concept: a big-thinking entrepreneur spends beyond his means, and his investors can't hold it against him.

Do venture capitalists have a greater bond than business to startups, seeing through the fruition of big-time ideas, regardless of whether companies are piddling away the money? What are the financial responsibilities of so-called strategic partners? EDS gave PowerAgent access to its systems integration products, but not the $10 million in funding. Do venture funds that don't go in for the second and third rounds open themselves up for similar bad-faith lawsuits?
 

Source: Tish Williams, Upside Today, March 30 , 1998