The Liquidator

The website of the week is – with a logo in hommage to Fast Company – where you win points if you vote correctly for the next dot-com collapse.

In London, if you get a little cocky or full of yourself, people just say Boo! – for, the lavishly funded start-up that just closed its doors.

In New York, APBnews closed its doors (although its laid-off staff, apparently unfamiliar with old-economy layoff protocols, kept showing up for work).

Salon, too, started to disgorge people.

Even CBS and NBC, no longer able to foresee an IPO for their Internet holdings, have begun to downsize their Internet staffs.

And Microsoft is kaput.

It certainly seems obvious to me that the Internet, or at least Internet culture, as it has helped shape the consciousness of our time – anyone can be transformed through business and technology – is over, done with, finis. And it seems to me that, considering what’s in store, cyber people would not want to wait around for the final scene of crash and burn, and ought to just pack up. Get some rest. Think about tomorrow, another day. (Personally, I can’t imagine why Gates himself doesn’t just say, Okay, game over, good run.) Possibly, even, come to some kind of moral attention – and try to dwell for a moment on the meaning of all this.

“If you’ve spent your money on national advertising before you had a customer base to support national advertising, you won’t be able to survive.”

But, very likely, that’s just my world-weary literary-ish take, and a misapprehension about human nature – people, oddly, don’t seem to want rest or introspection – and the business process (in an old economy or new). So, whereas I am most tempted to write the story of the end of the boom/mania/fun, with appropriate irony/bittersweetness/newfound maturity, I am instead going to recognize that in business, if not literary, terms, the game never stops. It morphs. Or starts over. Or, abruptly, reverses. From great catastrophe comes great opportunity is a popular business aphorism. Even at Microsoft, someone, somewhere, is undoubtedly starting to think that what the world is going to need is a new Gates – or two. And, no doubt, all over the dot-com world, panicked entrepreneurs and CEO’s are calculating new, audacious save-their-asses moves.

Which is why I’m sitting here with Fred Seegal.

It is true that at first blush, Fred Seegal does not seem like a new beginning. In fact, he seems like, and will be for many, the Grim Reaper, although without the grimness (the Grim Reaper probably doesn’t reveal himself right away, either). Where once you thought you were going to get $20 million, now Fred is going to get you $200,000.

And you’ll thank him for it.

Fred is a pleasant, middle-aged suburban-dad kind of guy. Cheerful, too. And yet, no denying it, he’s the liquidator. Although I’m sure he would prefer to be called a facilitator or negotiator or banker or – just – deal-doer. He’s going to try to put your traffic together with someone else’s traffic and make a mountain of two molehills; he’s going to introduce your No. 4 company to the No. 1 company in your category and get you guys talking; he’s going to try to get two companies, each with cash in the bank and a searing burn rate, and reduce them to one company with double cash and, with cuts and efficiencies and other hard-hearted stuff, a single burn rate.

Those are some of the strategies he brings to the process of selling dot-com companies that cannot go on. There are nicer ways of saying this. He’s selling companies that haven’t reached critical mass and that, therefore, have to be combined. Or companies that have encountered capital constraints in a difficult financial environment.

But goners all the same.

Fred is about to move from New York (from the New York suburbs) out to San Francisco to be closer to the action and the process of – say it – selling the Internet. Auctioning your dreams. It is for him, perhaps, an advantage, in that, being just about the most un-Internet, non- New Economy guy I’ve seen in quite a number of years, he probably lacks a certain sentimentality about the business. In character, he makes a dressing-for-the-Internet joke.

It’s as if he’d been transported here, perfectly intact, from the eighties. It’s a measure of how far we came in the nineties, how overblown, inflated, unreal we have become, that the eighties seem kind of basic, even haimish. Fred is the No. 2 at Wasserstein Perella, a firm that advised some of the great raiders of the takeover junk-bond era but went into quiet, possibly ignominious, eclipse during the IPO-VC nineties.

In fact, Fred’s basic eighties sort of middleman business is, in nineties terms, pretty low-return, low-margin. M&A advisory work, with its straight Lehman formula (5 percent on the first million, 4 percent on the second, 2 percent on the third …), is slim pickin’s, a schleppers’ game compared with 7 percent on an IPO, plus a ton of warrants, to 100 times your money (or 200 or 300 times) for a VC stake.

But somebody’s got to do it.

The world is suddenly a harsh place: There is no more money available for Internet companies. No more IPOs. No more VC rounds.

It’s not only harsh but existential. You’re all alone. No one can save you but yourself. There is no God.

Although there are, of course, advisers.

To Fred, who has seen a bit more of life than most VCs and dot-commers, this is all just part of the business process. Businesses go along; businesses get in trouble. In some sense, his point of view is not different from the brand-building theories of the past few years – it’s just the opposite. “If you’ve spent your money,” Fred says, “on national advertising before you had a customer base to support national advertising, you won’t be able to survive.” Fred believes in consolidation. The cult of the entrepreneur gives way to the new reality, which is that most companies “cannot exist independently.” Chances are, in fact, if you can name the company – that is, if it has spent enough on its advertising to make an impression on you – it may well not be around, at least not under the ownership of its present shareholders or the management of its current executives, for too much longer.

“Have most dot-com companies,” I say, asking the obvious, “hired people such as yourself?”

“Well, sure,” says Fred, as though a bit confused. Like, duh.

“Some kind of transaction will happen in every case, except if it doesn’t, which would not be good,” Fred says dryly.

What people say most frequently in an effort to impose logic on the fact that companies they took seriously five weeks ago are now going to be sold for scrap or, at best, scrap-plus, and to set themselves inside a larger context of economic rationality and historical economic processes, is that the automobile industry went from hundreds of companies down to four.

That, it would seem to me, is a horrible fate. Could there be a worse or more pitiably ironic outcome than for the cyber business to end up as Detroit? To become the people you most deplore? From golden entrepreneur to middle-manager bureaucrat inside of 36 months.

This is, I fear, not so much some inevitable corporate-industrial selection process but punishment. This is the punitive phase. This is what the Internet industry gets for iVillage. Consolidation represents a kind of receivership. On your entrepreneurial own, you fucked up. Now try this: oppressive, constraining, thrown-in-with-the-assholes consolidation.

But that’s me. I understand that if you’re running these companies, chances are you have a hair-trigger mechanism that allows you to adjust to new realities, or some other strange gene that makes you believe that when all is said and done, you will be the last man standing.

Out in Phoenix last week, dozens of executives from companies that went public at $10 or $20 or $30 a share but are now trading at $2 or $3 a share – that is to say, 90 percent off their high, catastrophe by any other name – were smoking what were rumored to be pre-’59 Cuban cigars at the Yahoo! Storming the Desert Executive Internet Summit.

Still in upbeat humor, many among them, I have it on good authority, were talking about calling Fred.

What are the alternatives?

There’s the denial thing. You can squeeze and cut back and lay off employees, hoping against hope you won’t run out of money. Indeed, there’s already been a fair amount of this. As you’re reading, the world is shifting from a place where everyone wanted to work for a dot-com enterprise to a world in which there are employees who have been burned more than once by dot-coms and who wouldn’t do it again for, well, money.

Or let’s say you’ve recently been funded. You’re one of the last guys to draw down $30 million or $40 million or $50 million in first- or second-round capital. You can look at your cash supply and calculate that you can make it till the next time the market comes around and gets “effusive,” in Fred’s word. Still, the problem is that the market may never again – never, ever – open up to inky-dinky $2 million, or $3 million, or $4 million, or $10 million revenue companies. That was then. This is now.

Or let’s say you’re a public company that can stabilize itself, even squeeze a profit. You can hang on. Sure, you’ll have no float, no liquidity, and a marginal market cap. You’ll get de-listed. Find yourself on the OTC bulletin board. But you won’t be the only one. Coma isn’t death.

Or you can call Fred.

If you call Fred in time (before called a Fred equivalent, for instance), with a little luck and an old-economy Rolodex he’ll be able to find you a buyer, a merger partner, a salvage situation. Fred and I play this game for a little while, knocking down company after company. Every company that has ever seemed iffy, questionable, too optimistic. “Silicon Valley is a big casualty,” says Fred matter-of-factly. “And anybody in the content category.”

But then, the easy part of Fred’s job is to identify the sellers. The harder part is to identify the buyers.

In a plausible vision of the Internet world, of that world as the next Detroit, the only new-media companies that are left are Amazon, Priceline, eBay, Yahoo!, AOL.

“If,” Fred says, “no accounting problems are discovered.”

When I suggest that at some share price, which we might be approaching sooner rather than later, Wal-Mart is an Amazon buyer, Fred says, obviously pleased, that Wal-Mart is a client, so he cannot comment on that. But you know what he’s thinking.

Then he suggests the deal he’d like to see is Yahoo! buying Priceline.

Consolidated. Congealed.

Many people feel this couldn’t happen to a bunch of more deserving guys. That this is fair retribution. What happens to wax wings on obnoxious fellows.

But it’s grim too. I mean, it – the Internet, or electronic distribution, or technology-enabled transactions, or whatever – won’t go away. It just becomes vast, layered, corporatized. AOL-Time Warner.

The New Economy, in other words, is about to become a punch line. The idea that there is a marketplace free from conventional business rules – not only in the Darwinian, cutthroat sense but in the boring-guy sense – is something that, soon, you’ll hear about only from aging hipsters.

The world is as it is . . .

If my employees were leaving, if the tension in my board meetings were getting to danger levels, and if, when all was said and done, what I really wanted were the same thing that everyone else wants, a job, a stable future, a little respectability, I guess I’d call Fred, too.

No, actually, I would just go home.


The Liquidator