SAN FRANCISCO (01/04/2000) - It was only a year ago that CookExpress.com launched a nifty service geared to busy professionals short on time and hungry for healthy, home-cooked food. The San Francisco firm was an instant hit, speeding prepared gourmet meals to some 5,000 customers in the Bay Area. Word spread and soon CookExpress expanded to offer overnight deliveries to other parts of the U.S.
So it came as a bit of a surprise when the apparently successful startup closed its doors just three days before Christmas, in the midst of what should have been its busiest week. CookExpress had burned through most of the $3.5 million it raised from a group of private and angel investors and wasn't able to meet its payroll. During a time when it seems every Net idea is being lavished with cash, CookExpress couldn't raise enough new funds to stay in business.
Chairman and founder Darby Williams hopes to find money soon and restart CookExpress this month. Whether or not he succeeds, the unraveling of its operations provides a rare illustration of the harsh realities that likely will face an increasing number of money-losing Net businesses. Most Net firms have been cushioned by the largess of venture capitalists hoping for a quick return.
But Net companies -- particularly those with high operating costs -- are sure to face increased scrutiny from investors.
"When you have an idea, it's easier to get money than when you have a business," says John Laing, executive VP of Food.com, a San Francisco firm that was one of CookExpress' partners.
Williams believes CookExpress' greatest failure was in not thinking big. "We would have been wise to raise more money in the beginning," he says. By contrast, online grocer Webvan raised hundreds of millions and launched a successful IPO in November -- less than four months after it began operations -- as investors bet they would get a big return on their investment.
Williams says CookExpress also failed to contend with its dwindling cash reserves and start the process of raising new money soon enough, which was made more complex due to the nature of its business. "A lot of the VC firms are focused on straight e-commerce," Williams says. "For this, you need to know about the food business and the distribution business. That narrows the set of VCs who will have expertise in all three areas dramatically."
If it succeeds in raising more cash, CookExpress' toughest challenge will be to get its employees back to work. In a market where any dot-com-savvy worker is deluged with job offers, CookExpress' ex-employees are not likely to be unemployed for long. Even Williams concedes the firm may not be able to get back in business: "There is always that chance," he says. "You bet."