@ LARGE
Seeing the p-to-p

By Scott Kirsner, Globe Staff, 8/7/2000

Sometimes you have to start at the end, not the beginning.

We had shaken hands and swapped cards after a lunch at a brew pub, and as he was walking away, the president of a business-to-business dot-com I'll call BuyingGroups said over his shoulder, ''Please don't make me the poster boy for failure.''

He and his partners had been working without pay for seven months. Friends and family, angel investors, and a corporate partner had given him almost $1 million to try to get his group-purchasing company off the ground. But BuyingGroups, though it finished developing the software, never launched.

They couldn't get venture capitalists interested, and without additional money they couldn't market the software to potential customers. Acquisition talks with heavy-hitters like Amazon.com and CNET never progressed past the early stages. People began to question the viability of online group purchasing, after companies like Mercata and MobShop were slow to attract users.

Now, this 42-year-old, first-time entrepreneur, who before starting BuyingGroups helped take two companies public as a top financial officer, is desperately trying to work something out. He's trying his best to be upbeat.

''I think we'll have a deal to roll it out soon, a revenue-sharing thing,'' he says. ''That could lead us to getting someone to finance it, or selling it. The number one priority is to make sure that my friends and family'' get their investments back.

Everywhere you look, coaches are turning to pumpkins. The Nasdaq's stuttering deflation is only part of the story. Day by day, the traditional rules of business are creeping back into the Internet economy. Strong relationships with customers and business partners count for more than puffy press releases. It's not about the PowerPoint presentation full of cheerful projections anymore, or even the gee-whizzery of the product. It's about the p-to-p: the path to profitability.

Ask Jay Wilkins, the former Army helicopter pilot and management consultant who started Boatscape.com, which sought to establish a ''virtual yacht club'' where nautical types could buy and sell boats and accessories.

Wilkins incorporated the company last March, found an office in the Back Bay, and by September had persuaded CMGI's @ventures wing to invest $5 million. Soon after, an analyst's report on CMGI put Boatscape's valuation at a staggering - and questionable - $75 million. But members weren't lining up to join Wilkins's yacht club fast enough. And by June he was forced to fire half of his 36-person staff to reduce Boatscape's burn rate, the speed at which it runs through capital.

Then, CMGI told Wilkins that if he was interested in keeping his company alive, it would make sense for him to look for a partner. Wilkins wound up doing a deal with SailNet.com of Charleston, S.C. The terms weren't disclosed, but it clearly wasn't a liquidity event to crow about. It was a hard shove intended to get Boatscape closer to the p-to-p.

''There's a herd mentality'' among investors, Wilkins says. ''People aren't making long-term decisions. They're making face-saving decisions. Everyone just started cutting losses, which is easier than supporting the investment.''

Venture capitalists, rushing to place bets on lots of Internet companies, haven't always given enough guidance to the companies on whose boards they serve. It has been called ''drive-by directorship.'' And some of the junior partners at VC firms don't have the deep operating experience required to make the right calls when times get tough.

The venture capitalists will learn their own lessons from the excesses of the last few years. Already, some are devoting more time to working with their portfolio companies and less to looking at new deals. But it's the entrepreneurs who are feeling the sudden weight of gravity.

''People are going back to basics,'' says Ted Dintersmith of Charles River Ventures. ''There was a two- or three-year suspension of that, when all sorts of things got financed, even if there really wasn't a business case to be made. But that chapter is closed, and may very well never reopen again.''

Dintersmith says Charles River is sticking by its portfolio, which consists mostly of infrastructure companies as opposed to e-tailers like Boatscape or the troubled Furniture.com. ''The best thing [the industry] can hope for is an Alan Greenspan-ish soft landing,'' he says. ''But it won't be a soft landing for everyone.''

Uncertainty and entrepreneurialism are, once again, synonymous. ''For a while, there was this perception that everyone was getting funded, and we were the only company that didn't get funded,'' says the president of BuyingGroups. He's right: It was merely a perception. Not everyone managed to scoop up a neat $5 million in venture capital. Not everyone made it to the IPO.

Utterly undaring prediction: More than half of the companies you read about in this section of the Globe today won't ever find the p-to-p, and they'll disappear. One local venture capitalist predicted that many local dot-coms raised enough earlier this year to last them through late 2000 or early 2001, when we'll start seeing plenty of them hit the wall.

In three years, it'll seem quaint that we in the media lavished so much attention on layoffs of a dozen people or bankruptcies of companies that never figured out how to turn a profit.

As for the president of BuyingGroups: He might dig out a save, he might not. But he certainly won't wind up as the Internet economy's lone poster boy for failure. We're going to have lots more than just one.

Isn't that how things used to go?

Scott Kirsner is a contributing editor at Wired and Fast Company magazines.