5 Dot-Com Busts: Where They Are Today

NEW YORK ( TheStreet) -- Thursday, March 10 marks the 11th anniversary of the dot-com bubble burst, when dozens of early Internet companies saw their stock prices soar as the tech-heavy Nasdaq peaked at 5,048.62 before tanking several months later.

While the insanely-big valuations of some of today's most well-known Internet companies have prompted worries of a second tech bubble, the ripple effect of the dot-com bust should have taught everyone a lesson: The stock market crash of 2000 led to the loss of $5 trillion in market value of companies from March 2000 to October 2002 as well as the beginning of a mild economic depression.

While some large dot-coms like Google ( GOOG), Amazon ( AMZN) and eBay ( EBAY) survived and are thriving today, many early start-ups ran out of capital and were acquired or forced to liquidate.

The dot-com bust led to the end of the Silicon Valley gold rush, where venture capitalists invested zillions of dollars into companies with unproven business models, when college students became millionaires over night and when spectacular growth was prized over profitability and sound business plans.

Read on for the stories of a few key dot-com era start-ups that went spectacularly bust -- and how their founders have rebounded.

Kaleil Isaza Tuzman

Then: CEO of govWorks

Now: founder of KIT Digital

The subject of a documentary called Startup.com that chronicled the company's demise, govWorks was an online portal that allowed people to pay government-related bills like parking tickets.

Top-tier investors like private equity firm Kohlberg Kravis Roberts and Silicon Valley venture firm the Mayfield Fund poured in more than $60 million into the company, which earned revenue from bill payment fees.

govWorks began to expand rapidly, increasing its headcount from 50 in October 1999 to 250 employees by late spring 2000. But despite the considerable hype surrounding the company, deals took much longer to roll out than expected. govWorks tried to change its business model, but was forced to lay off employees and, eventually, failed to raise more funds.

govWorks collapsed in January 2001. It was eventually sold to First Data ( FDC).

After govWorks, co-founders Kaleil Isaza Tuzman and Tom Herman went on to form Recognition Group, which helped restructure distressed companies. Isaza Tuzman was later brought in as president of JumpTV, a start-up focused on Internet television. He led a $60 million initial public offering of the company, before purchasing a controlling interest in video technology business ROO Group. The company later became known as KIT Digital ( KITD), where Isaza Tuzman serves as CEO and chairman.
Kaleil Isaza Tuzman

The company predicts it will report fiscal year 2010 revenue upwards of $100 million, when it announces its annual results on March 16.

Isaza Tuzman called his time at govWorks "an incredible life instructive experience" in an interview with the Wall Street Journal last year, despite the company's failure. "I find a lot of entrepreneurs often will come now looking for capital or some sort of involvement in a start-up dynamic, and you feel that in the dialogue they're afraid of talking about their own failure," he said. "I'll say, 'Hang on. It's okay to talk about it.' It's actually much more credible if you talk about the lessons you glean from it."

Stephan Paternot

Then: co-founder, theGlobe

Now: co-founder and chairman of PalmStar Entertainment

theGlobe, a social network started by Stephan Paternot and Todd Krizelman in their dorm rooms in 1994 at Cornell University, was the Facebook of the dot-com era. Started as a chat site, theGlobe eventually branched out into personal Web page hosting and video gaming.

When theGlobe went public in November 1998, it had the largest first day gain of any company debut in history -- a 606% increase over the initial share price. After the bubble burst and theGlobe's stock price tanked, Paternot and Krizelman left the company.

theGlobe was eventually used as an investment vehicle to acquire other Internet media and advertising companies, including a voice over Internet protocol (VoIP) service and a computer games business. It continues to operate as a shell company, with no material operations or assets.
Stephan Paternot

Today, among other things, Paternot is the co-founder of PalmStar Entertainment, a film production company. One of his most recent films, Life 2.0, is about virtual world Second Life. He is also a general partner of the Actarus Funds, which provides seed capital to start-ups in the Internet sector.

Paternot said he likes juggling multiple projects because it gives him balance -- an attribute he lacked during the 1990s.

"I didn't have that perspective while working at theGlobe because I was single-handedly obsessed with building the world's largest community," he told TheStreet. "If you are too one-track minded and the business doesn't work out, you can find yourself having an existential crisis."

Philip Letts

Then: CEO Beenz

Now: founder of Blur Group

Beenz, an online currency provider, was the dot-com precursor to Facebook Credits.

Founded in 1998, the U.K.-based company positioned itself as the official currency of the web, letting consumers earn "beenz" through activities like visiting a Web site or online shopping. The e-currency could then be spent online through participating merchants.

The company hired former software exec Philip Letts as CEO, and raised three rounds of funding from prominent investors like Oracle ( ORCL) founder Larry Ellison. It its most high-profile deal, beenz was integrated into MasterCard's ( MA) credit and debit cards, allowing users to spend the currency in offline stores.

Letts helped Beenz expand rapidly, opening five offices in Europe, in addition to those in New York, Silicon Valley, Australia and Asia. He also grew the staff from 15 to 340 in less than two years. He left the company in mid-2000 to helm B2B marketing services company Tradaq.
Philip Letts

After the dot-com bubble burst, Beenz folded and was sold to Carlton Marketing for an undisclosed sum.

After Tradaq, Letts was CEO of mobile software company SurfKitchen, before going on to form his own creative services exchange, called Blur Group.

Letts said his experience at Beenz and other ventures provided him with the tools to start his own company later in life, such as how to assemble a successful management team, design a business model and develop a marketing strategy. He also learned the importance of scaling a business properly, and has purposefully kept Blur Group lean.

"If you over-engineer a business when it's too young, you kill it. If you under-engineer, you slow it down," he told TheStreet. "It's about getting the engineering and architecture of the business right at every stage."

Joseph Park

Then: former CEO, Kozmo

Now: senior vice president for consumer and digital, HarperCollins

Co-founded by young New York City-area investment bankers Joseph Park and Yong Kang in 1997, Kozmo promised free one-hour delivery of items like videos, games, DVDs, books, magazines and food, with no delivery minimum.

The company raised $250 million in venture funding from investors like Amazon, Oak Investment Partners and a subsidiary of Chase Manhattan bank, and expanded quickly into a dozen urban markets. The company failed in April 2001.

Park went on to Amazon, where he helped build Askville, the e-commerce site's social Q&A website. He now serves as senior vice president of HarperCollins' consumer digital business.
Joseph Park

Looking back at his experience at Kozmo, Park said he should have focused more on running his business for the long-term, and less on generating outrageous growth. "We were so enamored with our multiples and going into new markets because we found out quickly enough this is what drives growth," he told TheStreet. "You are not necessarily driving for profitability."

Park said he noticed similarities between several of today's high-growth start-ups and Kozmo. "Looking at the Groupons of the world and how they're making the same land grab, it's an an interesting comparison from an expansion standpoint," he said.

Julie Wainwright

Then: former CEO, Pets.com

Now: founder, SmartNow

Pets.com, whose sock puppet mascot appeared in a multimillion Super Bowl commercial and on a float in the Macy's Thanksgiving Day Parade, came to symbolize the collapse of the dot-com era.

The company, which sold pets supplies online, tried to build a customer base by offering discounts and free shipping, but found it difficult to turn a profit while absorbing costs associated with shipping bulky pet items. Pets.com also faced challenges convincing pet owners to shop online and wait several days for supplies they could easily pick up at any grocery store, an analyst told CNET at the time.

Despite being backed by Amazon, the company, which spent more money than it made, collapsed nine months after raising $82.5 million in an initial public offering in February 2000. It remains one of the shortest-lived public companies on record, according to media exec Kirk Cheyfitz.

Since Pets.com folded, CEO Julie Wainwright started SmartNow, a health care technology company.
Julie Wainwright

Wainwright declined to comment on this story.

--Written by Olivia Oran in New York.

>To follow the writer on Twitter, go to http://twitter.com/Ozoran.

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