Where did it go wrong for Clickmango.com?

One of the web's fastest-growing websites doesn't offer entertainment, ecommerce or even 'adult' material. What it does provide is information about dotcom failures. And F****dCompany.com's revelations that online health retailer Clickmango.com may wind down its business in the absence of funding were greeted with glee.

"It's going down faster than Monica Lewinsky," crowed one observer as Clickmango's notorious inflatable pink and green boardroom was sold to a Japanese collector. But Toby Rowland, Clickmango's founder and chief operating officer, has news for those eager to write off the business. "We haven't thrown in the towel yet," he said.

Still, the outlook is bleak. Since April, when the company began looking for £10m to fund its international expansion, Clickmango has been turned down by 75 potential investors and suffered the humiliation of being refused a £300,000 bridging loan by its lead investor. The firm now has enough cash to survive for just six weeks.

So what went wrong? Last October, it took eight days for Clickmango to secure £3m in venture capital funding from Rothschild Capital and Atlas Venture. It recruited 80 staff from companies including Oracle, Disney and AOL, and roped in actress Joanna Lumley as its spokeswoman.

Costs were modest, with the vendor spending just £250,000 on marketing, and it focused on developing partnerships that would not cost it a lot of money, including a recently signed deal with Hotmail.

The website cost less than £1m to set up, while running costs were about £100,000 per month - even though burn rates of five times that sum are not unusual. Weekly sales were £2000 and growing at 20 per cent, while the company had a healthy six figure sum in the bank. Good - but not good enough.

Timing is everything
"I can't help thinking it's all about timing," said Rowland, his voice hoarse from phone calls with bankers, partners and customers. "We timed it wrong, and I don't think we're the only ones."

According to Matthew Nordan, director of European research at Forrester, Rowland is right. "We're going to see the trickle of dotcom failures become a flood," he warned. "The climate is much tougher, and companies have to offer something not just good, but unique."

A report by PricewaterhouseCoopers earlier this year suggested that as many as 60 per cent of UK dotcoms would require additional financing before the end of the year. If Clickmango's example is anything to go by, those companies will find it hard to obtain.

Rowland's problems started when technology stocks crashed in April. Investor sentiment began to turn against business-to-consumer (B2C) startups, and was hardened by the collapse of boo.com in May. "That's when we made our mistake," said Rowland. "We waited until the service had launched before looking for funding, but the market had crashed and it was very difficult to find investors."

In the following weeks, Rowland learned a painful lesson. "The venture capitalists and investors are only interested for as long as they see a fast financial exit. I understand that much better now."

With the value of US sites such as Mother Nature and PlanetRX collapsing, investors were wary of companies with poor flotation prospects.

Rob Zegelaar, senior principal with Atlas, said: "We didn't see that a loan would help it raise the finance needed to build the business." In other words, Atlas didn't believe that Clickmango could raise the capital necessary for a sale or initial public offering (IPO), and so cut its losses.

The natural answer
Other B2C companies have been more fortunate, however. Competing health site Thinknatural raised £6m only weeks before the market crashed. "It's valued at five times more than US companies generating millions of dollars," said Rowland. "It's untenable, but [the valuation] gave it a platform to get more investment."

Thinknatural has since signed partnerships with the Kingfisher Group, which will sell its products in Superdrug stores, and Zoom.co.uk, the online arm of retail group Arcadia.

But an application by Kizoom.com for £5m in venture capital funding was turned down in May. The company, which provides wireless transport information, was lucky to find £500,000 from private investors, which kept it afloat long enough to sign an exclusive deal with Railtrack.

Damian Bown, Kizoom's founder and chief executive, said: "Venture capitalists didn't want to know, and didn't believe we could get partnerships." Today, Kizoom has access to 500,000 Railtrack customers every month, and plans to approach the venture capitalists again later in the year.

Without such capital, however, Clickmango found itself unable to attract similar partnerships despite five weeks of negotiations with high street giant Boots. "Even bricks and mortar investors watch the markets closely because they like to think that they have the option to run the business or to IPO it," Rowland explained.

But while bricks and mortar companies are sitting back and enjoying the Schadenfreude, Rowland believes people are missing the point. "No-one can say the business didn't work," he said. "We were only given three months to prove it."

In these tough times, however, it's easy to forget that many companies are making a roaring success out of their web ventures. AOL's quarterly cash flow is more than $1bn, and Amazon's run rate is more than twice that. But it's not surprising that these dotcom successes are peppered with many others sliding towards ruin.

It seems that revolutions must always consume their first and most passionate advocates.