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>Delivered-To: fixup-FoRK [at] xent [dot] com@fixme
>X-Sender: rohit [at] pop.ics.uci [dot] edu
>Date: Tue, 31 Oct 2000 13:07:43 -0800
>To: FoRK [at] xent [dot] com
>From: Rohit Khare
>Subject: [Herring] Scout’s investors turn on each other
>VCs leave Scout to die
>By Richard Byrne Reilly
>, October 31, 2000
>To outsiders, the failure of Scout Electromedia would appear to be
>the result of yet another bad business plan, but the real reason is
>that the investors turned on each other, according to two company
>Scout’s simultaneous attempt to build costly hardware while spending
>heavily on marketing proved a losing formula, says a venture capital
>investor who asked not to be named. And it appears that a dispute
>between two of its investors about a bridge loan to keep the company
>afloat was the final straw, says the VC source and Matt Fisher, a
>former senior editor at the company. (Red Herring chose not to print
>the names of the two alleged investors because it could not get
>comment from them to confirm or deny the report.)
>Investors in Scout include Idealab, Chase Capital Partners, Flatiron
>Partners, and Techfund Capital. Red Herring contacted all of the
>investors, except for Techfund, but all declined to comment in any
>significant way.
>After burning through $27 million in venture funding in just over a
>year, the startup collapsed last week. Workers who showed up for
>work last Tuesday at the company’s headquarters in San Francisco
>were told to hand in their keys and then brusquely shown the door,
>says Mr. Fisher. He adds that he and other employees were not given
>severance pay, but that investor Idealab is rumored to be
>considering giving them exit packages.
>In a bizarre aside, Scout went ahead with a lavish party in Los
>Angeles a day later, because it had already paid for it, Mr. Fisher
>says. The October 25 bash was attended by the likes of actress Drew
>Barrymore, who, Mr. Fisher says, was visibly upset because she had
>bought 11 of the company’s now-useless handheld devices. He also
>claims that actress Whoopi Goldberg purchased 80 of the devices one
>day before the company shut its doors.
>Scout produced a wireless device called Modo, a Palm-like gadget
>that worked as a city guide, sending users updates about movie times
>and giving them access to restaurant listings. Listing for $99, Modo
>debuted in three U.S. markets, selling from shelves at outlets
>including Virgin Megastores and Fred Segal. It was a hit at the Demo
>Mobile conference in Pasadena, California, in September. About 3,000
>were sold, according to a venture capital investor who asked not to
>be named.
>What recourse do the purchasers of those devices have? Red Herring
>contacted Scout CEO Geoff Pitfield on his cell phone, but he would
>only say: “I really don’t want to talk to you about this,” then hung
>up. Other official company spokespeople did not return phone
>”The management team was young and inexperienced, and there weren’t
>that many investors to begin with,” the VC source says. “Besides,
>the capital market is now pretty tough, and when you spend tons of
>money on marketing and manufacturing you need to have deep pockets.
>And that’s what Scout didn’t have.”
>It isn’t clear who lost the most money. The VC source says that
>Idealab was the majority investor, with more than $14 million pumped
>into Scout’s last round. But Idealab spokesman Brad Copeland issued
>a terse email that said Idealab was a “minority” investor. He
>declined to comment further. Calls to Idealab partners Scott
>Bannister and Scott Weiss, the point people on the Scout investment,
>were not returned.
>For Idealab, the Scout debacle represents another disappointing hit
>to its portfolio. In addition to the embarrassing collapse of market
>capitalizations of public portfolio companies such as eToys (NASDAQ:
>ETYS) and (NASDAQ: GOTO), its private companies have
>suffered with the downturn of business-to-consumer (B2C) plays. Just
>two weeks ago, online cosmetics retailer closed its doors.
>Portfolio company recently laid off about one-third of
>its 103-person staff, and half of the 95-person staff of was
>also sent packing.
>Is not clear what will happen to the technology and assets of Scout.
>Given that the CEO has apparently gone underground, with some jilted
>employees eager to exact revenge by speaking to the press, it could
>be a messy breakup. And whether investors will be able to get any of
>their money back appears doubtful.
>The unnamed VC says the harsh failure of Scout portends one of many
>that will soon begin gracing the covers and business pages of
>newspapers ad nauseam. “It’s a shame, really, because they deserved
>a better fate. In retrospect, we all have regrets that it didn’t pan