Funds dry up for online city guide
Investors of the online city guide Globopolis are looking to sell their stakes in the financially strapped Web site after they refused to issue the firm a second round of funding. They cited Globopolis' failure to meet revenue projections resulting from the overall downturn in market conditions for dotcoms, one investor said.
Jan Tauber, the managing partner of Genesis Capital, a Prague-based investment advisory firm that originally committed $1 million to Globopolis, said the Web site's investors were ready to sell Globopolis. "The sooner the better," he said.
The management team of Globopolis is also searching for prospective investors, Tauber said. But Chip Schenck, Globopolis' vice president of marketing and sales, refused to confirm it. "It would seem obvious," he said. "If this kind of thing is happening, it's the smart thing to do."
The firm's investors Genesis Capital, international venture capital group Advent International and U.S.-based Kistler Associates originally pledged $6 million in two tranches of $3 million each last June. Globopolis received the first $3 million tranche five and a half months ago, according to Schenck. But its investors decided at a meeting last Monday in London to refuse to pay the second tranche. Both the investors and Schenck cited adverse market conditions as the reason for their refusal of the second round of funding.
"The problem was (Globopolis) couldn't meet the revenue stream, and they had to drastically scale down operations," said Tauber, without citing the investors' specific revenue expectations.
Schenck also declined to state a figure, but said that Globopolis was generating revenue in four of the Central European countries in which it operates. The site's advertising sales had increased 35% for the November-December period last year, he added.
Globopolis, which offers online multilingual entertainment and travel guides for 10 Central European cities, previously predicted it would show an operating profit by 2003.
Schenck, however, indicated that the company's cash-burn rate averaged about $200,000 a month, saying the amount would differ from month to month. "We were in the process of cutting back the burn rate," he said.
Zoltan Toth, the managing director of the Budapest office of Advent International, was not available for comment early Friday. Questions were submitted to him by Jana Simanova, the office manager of Genesis Capital, an affiliate of Advent International.
"The final decision was made by all shareholders (on Monday) after parties couldn't find a solution that made sense for everybody," said Simanova, reading Toth's prepared statement. "We have been satisfied with the performance of the management. However, the market outlook has changed."
As a result of the funding cut, Globopolis was forced to lay off about 100 of its more than 120 staff members in its five Central European offices, including its Warsaw operations. Schenck said all employees were informed last week that they would lose their jobs at the end of January, and added that they would all receive their full salaries. Furthermore, Schenck said that Globopolis would likely retain one or two key people in each office, but that his firm gave them no indication of whether they would receive a salary.
"We were in a difficult situation and had very few options and different choices in front of us," said Schenck, who was in Warsaw last Friday to break the news to local employees. "We had to make a decision to act in the best interest of our shareholders and our employees." He expressed uncertainty about the future of Globopolis after January. "We are in financial distress, there's no question of it," he said.
