CEO explains why Mercata’s closing up shop

opinion

Jan 26, 20013 mins

MERCATA FELL VICTIM to investors’ cooling interest in e-commerce companies, according to the vendor’s founder and CEO.

During the past two days, Mercata withdrew its IPO filing and then announced it would close its doors Jan. 31.

“The appetite for e-commerce investments has dwindled to the point that it’s almost nonexistent,” Tom Van Horn, Mercata founder, CEO, and president, said in a phone interview Friday.

Founded in September 1998 and open for business in May of the following year, Mercata specialized in providing Internet-based group buying services under the slogan, “The more people who buy, the lower the price.” The company dubbed the group-buying concept “we-commerce.”

Mercata filed to go public in early March of last year, at that time hoping to raise $100 million, Van Horn said. The company had already raised close to $90 million through three rounds of financing, with the lead investor being venture capitalist firm Vulcan Ventures. Vulcan, which is led by Microsoft co-founder Paul Allen, was Mercata’s founding investor back in 1998 and owns about 55 percent of the privately held company.

Although some companies did show interest in acquiring Mercata during the second half of last year, some as late as just before Christmas, none of the interest bore fruit, Van Horn said. Although existing Mercata investors were supportive to the struggling company, none of them were prepared to invest more money in the business. Privately owned Mercata, like many two-year-old companies, was yet to become profitable and required funding just to keep going, according to Van Horn.

Ironically, the fourth quarter of 2000 was Mercata’s best ever, Van Horn said, adding that the company had met or exceeded the goals its investors had set. But “great ideas and execution” cannot survive without funding, Van Horn said. It’s like having an airplane, but with no air, “you can’t stay aloft,” he added.

Van Horn discounted any notion that Mercata’s failure and the severe troubles another group-buying company, European LetsBuyIt.com, is suffering mean that the “we-commerce” concept is flawed.

“I suspect [LetsBuyIt.com] was caught in the same global downturn as us,” he said. “We-commerce is a great concept that’s working tremendously well … It’s a fundamental form of e-commerce.”

Although most of Mercata’s just more than 100 staff will leave the company as it closes Jan. 31, Van Horn and a few others will remain to tie up loose financial and legal ends as well as look to sell off the company’s assets.

Mercata has an intellectual property portfolio, having already received one U.S. patent in relation to its group-buying technology in August of last year and with another 16 patents pending in the United States and abroad, according to Van Horn. “We have trademarks and we have a source code library of nearly half a million lines of code” to implement its group-buying model, he added.

Since Thursday’s closure announcement, Van Horn has already received a number of inquiries from companies interested in possibly acquiring the assets from Bellevue, Wash.-based Mercata, he said.

As for Van Horn’s long-term future, it is very early days, although he said he’s likely to remain in the Seattle area and perhaps embark on helming a fourth startup.