Boo Gets a Bailout

LONDON (05/08/2000) - Following rumors that the company was on the block, cofounder and CEO Ernst Malmsten said Friday that the Web retailer has closed a new round of funding, led by majority backers LVMH.

Malmsten declined to name the exact amount of the bailout, but sources close to the company pegged the figure at as much as $30 million. Industry doomsayers saw the move as a final, urgent bid by lead investors to recoup some of the $108 million they sank into Boo during the heady days of last summer, when the so-hip-it-hurts company hit the big time. Fueled by a $25 million public relations and advertising blitz, Boo became one of the best-known brands in online retailing.

But that buzz has long since turned into a steady stream of negative reports on the beleaguered company, which has lost several key executives and let go of some 25 percent of its staff. "We have had quite a tough period for the company, dating from when we launched [in November]," Malmsten said. "It's up and down every day." Despite rumors that Bernard Arnault's LVMH is looking to cut its increasingly magnificent losses on Boo, Malmsten said his backers are still hanging in there. "They are very supportive and they have board representation as well," he said. "They have been part of the company from day one. They are quite used to some negative press as well."

Chahram Becharat, managing director of Bernard Arnault's investment fund EuropAtWeb, did not respond to requests for comment. Malmsten and LVMH are keeping mum on what conditions accompany the cash injection, but a growing body of speculation has co-founders Malmsten and Kajsa Leander leaving the company in a corporate restructuring. Both Malmsten and Leander deny that their jobs are on the line. Patrik Hedelin, the third founder, who left his job as finance director of Boo in December, declined to comment on the current situation, but said he is working on a new project to be announced soon. One option for Boo would be to sell off the technology it invested so heavily in. The company hasn't ruled out the possibility of selling itself to an offline retail outlet or a less-troubled online name. Adidas, Reebok, and Fogdog Sports have all been reported as having an interest.

"We're not up for a trade sale," Leander said. "We just finalized this round of financing. The existing investors are still backing us, and fully believe in the company." Boo, the darling of the high-tech and investment media before the site launched, has new status as a favored whipping boy of journalists.

Malmsten said he's getting used to the querulous press, but others on the Boo staff have been less keen to stick it out. Two finance directors, the marketing director, and the head of human resources, among others, have left the company in recent months. Malmsten blames Boo's high profile.

"We are a very attractive place to take people from," he said. "All the headhunters in London [come here.] It's not a good environment when we have [headhunters] calling the staff 10 times a day." Some who have left the company say that Boo is to blame, and that it's not hard to find a more attractive offer elsewhere. One former employee described the company as "supremely chaotic." "What kind of startup employs 400 people before launch?" said the ex-staffer, who asked not to be named. Boo's suppliers are finding the company increasingly difficult to work with as well.

Designer Rebecca Danenberg, a vendor for the retail site, filed for bankruptcy this week and said was partially to blame. She said had not paid an outstanding bill of $120,000. Leander denied the charge, saying the bill was paid. "I think it was a bit of a miscommunication," she said. "I certainly don't think we're the cause of their bankruptcy."

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