No cheers as fashion site boo.com goes under

If lastminute.com was the internet story of the early part of the year then boo.com, the on-line sports retailer, is the story of the summer. While lastminute came to typify the peak of Britain's internet bubble, boo.com became the sector's first high profile internet casualty.

If lastminute.com was the internet story of the early part of the year then boo.com, the on-line sports retailer, is the story of the summer. While lastminute came to typify the peak of Britain's internet bubble, boo.com became the sector's first high profile internet casualty.

Boo is said to need a cash injection of $30m (£20m) by the end of today or face receivership. Industry insiders were saying yesterday that the company was "unlikely to get it". And they didn't. "They are struggling to pay their bills and I don't think their backers are going to put up more money," one said.

But if boo is the first major internet company to suffer a cash crisis, it will not be the last. According to accountants, PriceWaterhouseCoopers, the majority of listed UK internet companies could run out of cash within 15 months, with a quarter of them predicted to run out within six months.

The research measured the companies' cash "burn rate", meaning the length of time they can continue to operate before needing to raise additional cash. It looked at 28 internet companies using their own published financial statements.

John Soden, a PWC partner, said: "Many of these companies have very little time left in which to start increasing revenue or to raise new cash. And the recent correction in equity markets means investors are becoming much more selective about which internet stocks they will back." As one internet analyst said: "A year ago people were just prepared to invest in anything just to get money into e-commerce. Now they are being much more critical."

The change in the markets means that dot.com companies that have already managed to get their floats away have a huge advantage over those that have not. Lastminute.com still has net cash of £131m from its float. QXL has £80m and Freeserve is sitting on £75m. Boo.com, on the other hand, raised $120m (£80m) from investors to fund its launch last year but appears to have burned almost all of it already.

Hopes of a float were abandoned earlier this year as sentiment towards business-to- consumer internet companies changed and stories began to surface of its cash problems.

But to blame boo's struggles on a change in investor sentiment would be unfair. Stories are rife of mismanagement and profligacy with many saying the company has only itself to blame for its current plight.

Boo was founded 18 months ago by two 29-year-old Swedes, Ernst Malmsten and former Elite model Kajsa Leander. The concept was relatively simple. It was to create a website selling fashion and sports clothing to the hip, young internet audience. Brands would include DKNY, Timberland and Paul Smith. The site would use state-of-the-art technology. But from the start they over-stretched themselves. The launch plan was too bold, attempting to operate across Europe from a standing start. The website was too complicated for most computers resulting in frustrating delays and long download times. "It used technology for its own sake," says David Bowen, editor of internet magazine Net Profit.

Technical glitches meant the launch was five months late. Because boo's stock was all up-to-the-minute fashion it then had to be discounted by 40 per cent in order to shift it.

Meanwhile, the founders were spending money like water. One source close to the company says: "Money was spent stupidly. There was this clique of people around the founders that adopted a kind of Hollywood movie star lifestyle. They would fly at least business class and stay at top hotels like the Mondrian in Los Angeles. There would be boasting tales of drinking until 6 o'clock in the morning and about how much the champagne had cost. That's not the way a start-up behaves.

"They were trying to make it a very groovy place to work and organic fruit, chocolate biscuits and diet coke was delivered to the offices on a daily basis. There would be terrific parties in Notting Hill with dancers and other shows. They were some of the best parties I've ever been too." Expensive Palm Pilot V's were handed out to many staff members a year ago. The backers, including the Benetton family and Bernard Arnault's e-commerce vehicle Europe@Web, either didn't know what was going on or thought boo would be successful enough for it not to matter.

While the top management led the high life their managerial talents were questionable, insiders say. One manager who knows the company well, says: "They rushed everything. They rushed the launch date and tried to launch in too many countries."

Another, describing the management, says: "They were very egocentric. If they thought a meeting was boring they would either walk out or not attend at all. If they heard news they didn't want to hear they'd walk out then too. They were very immature." The irony is that for all this boo developed certain assets, which will be extremely valuable. For example its logistics systems were rated highly and Credit Suisse First Boston recently ranked boo the number one global e-tailer for service.

Boo's experience is a cautionary tale of the perils of dot.com land. It is also a sign of an inevitable consolidation in business-to-consumer internet companies.

As John Soden at PWC points out: "We shouldn't get things out of perspective. These companies are start-ups and they carry high risks as well as potentially high rewards. What we are saying is that companies need to take action sooner. We also see this as a driver of a significant number of mergers of dot.com companies over the next 13 months as they seek to counter high burn rates with efficiency savings and revenue enhancement."