LONDON (05/31/2000) - Efdex, an online exchange for the food and drink industry that has been funded to the tune of $65 million, is on the rocks this week.
Although the site has been in development for six years, it's still in beta.
Staff members haven't been paid since April, and a number of them have walked out.
The first to depart was Ellen Marram, the CEO. Marram, a former president and CEO of Tropicana and executive at Nabisco, is a high-profile manager in the food and drink world, and her appointment in August 1999 gave the company international attention. Marram resigned abruptly on May 18, saying only that the move was "by mutual agreement."
Since then, however, the reasons for Marram's resignation have become clearer.
The company has been unable to pay employees since April, and though it is trying to close a round of financing that Chairman Tim Carron Brown pegs at $110 million, the increasingly tenuous atmosphere of the capital markets makes that kind of money hard to come by.
Efdex employs more than 200 people in its U.K. and Stamford, Conn., offices, and as a business still in development, it has no revenues to speak of. The walkout "shouldn't have any effect on the investment," says a spokesman for the company who asked not to be named. "Every investor that these guys have is a strategic one, and they're in it for the long term.
They have a mature attitude of what it takes to build a business like this, and it's going to be fine." The spokesman says that some 30 people have left Efdex over the past month since the company failed to pay their salaries. "It wasn't a walkout en masse by any stretch," he says. "Just the usual attrition rate."
Efdex made its public debut in 1995 as the Food and Drink Index. It was conceived and founded by Tim Carron Brown, who was CEO of the backing company, Mondial.
The project was funded by a reported $1.49 million investment from two well-known London media executives, Chris Ingram, head of CIA Group, and Richard Humphreys, the former CEO of the Saatchi Saatchi advertising agency.
Mondial also accepted $627,000 in grant money from Argyll and Isles Enterprise in Scotland, and the firm promised to bring about 150 jobs to the region, a huge boon to the depressed town of Dunoon, Scotland. By April 1996, the company employed 60 people in Dunoon and said it would expand the staff to nearer 100.
Amid mounting debts, however, the company pulled out of Dunoon in November, leaving behind furious creditors and unpaid employees.
"There were lots of people taken on in Scotland," says a former executive. "The biggest thing is, it's like a very tiny island. When you take a community on like that, it's fabulous, it's like being their new son or parent. But when you let them down, it's unconscionable. It was hundreds of people; I was just devastated." Today, financing has again run out and debts are mounting. The company has failed to satisfy 23 country court judgments against it, according to the Mail on Sunday. The judgments for unpaid debts amount to some $130,000, and five of those were issued in the last two weeks of May. Chairman Brown maintains that the system has only weeks to go before launch.
"We have raised a significant amount of money from our stockholders that took us through to the end of April," he says. "[Another] transaction was scheduled to complete by the end of April, but there are always more complications. As a result, we were not able to pay the majority of our staff at the end of April, but they have been fully briefed and are being paid along with a compensatory bonus." Because Efdex's future looks uncertain, industry watchers are comparing the site to the recently dismembered Boo.com.
The demise of Boo heralded doom for cash-hungry business-to-consumer Internet businesses, but Efdex provides one of the first solid signs that all is not well in the business-to-business sector. The company is everything that Boo was not: a serious b-to-b company with a long-range trading vision, run by experienced industry veterans.
But in the six years of Efdex's history, the company has burned through some $65 million, and it still has no recognizable profile in the food and drink sector, the industry it's trying to revolutionize. "I've been observing and analyzing this industry for nearly 25 years, and I know most of the leading decision makers at the Top 100 companies," says Bob Messenger, editor of Food Trends. "Efdex has never been brought up. What has been brought up is Ellen Marram's name. She's a well-known commodity in our industry, once a true whiz-kid kind of leader at Nabisco and later as president of Tropicana. To be honest, I received the Efdex information packet from Ellen's office several months ago, and I'm still confused as to who they are and what they do."
The Efdex story is shaping up to be another painful lesson for the young e-commerce industry, demonstrating that companies don't have to be run by inexperienced, media-hungry executives in order to fail.