"We were turning down investments beforehand, and a
month later they weren't there," Fisher says. "Does that mean
our business was no longer viable? I guess maybe so, but
certainly not much changed internally in that time."
Pousti says the plan all along had been to look for
bridge funding while waiting for an initial public offering,
but the two-month delay in closing the Versity deal had
unexpected consequences.
"We burned through two months of cash and then we
filed, and instantaneously the bridge market shut down, so we
were left there with our pants down," Pousti says.
Scott Martin, the vice president of marketing for
CollegeClub, says the Versity deal made perfect sense at the
time, and both investors and the board encouraged the move.
"It was a strategic move that would have paid off for
us down the road, and unfortunately, down the road wasn't
really what the market was interested in anymore," Martin
says. "They wanted immediate profitability."
And profitability was something at which CollegeClub
never really excelled. According to its S-1 filing,
CollegeClub generated revenues of approximately $2.9 million
in 1999. During this same time period, however, the company
incurred operating expenses of almost $23 million. By the end
of 1999, CollegeClub had an accumulated deficit of $35
million. Although CollegeClub did report in its S-1 filing
that it had raised more than $50 million, Fisher explains, the
money didn't come in one lump sum, and the company never had
more than $10 million in the bank.
Pousti agrees that the $40 million round of financing
that closed in December sustained the company a lot longer
than outsiders might think.
"We used that money to go all the way from October to
July, which is about 10 months," Pousti says.
But CollegeClub's coffers were showing signs of
distress way before July. Jeremy Lappin, a founder of
Versity.com, which itself had raised $12 million in venture
capital, recalls there were signs of the company's financial
plight early in the relationship. According to Lappin, an
agreed-upon $1 million payment to help Versity.com settle its
own debts failed to arrive on time. And one creditor, Prolog
Logistics, filed suit at the end of May seeking payment of
more than $50,000 in storage and logistic services.
In a cruel twist, Lappin had convinced the majority of
the 50- plus Versity staff to move to San Diego, with the
first wave of employees starting on May 1 and the second group
starting on May 15. On May 22, CollegeClub announced its first
round of layoffs, cutting 150 jobs across all departments.
Many of those employees are now receiving threatening letters
from San Diego-based Ace Relocation Services, the company
CollegeClub hired to help move the Versity employees.
According to court documents, Ace is owed close to $80,000 in
fees. Lappin says he has received a letter from Ace Relocation
hitting him up for his moving bill and that the relocation
company kept the personal belongings of at least two Versity
employees in an attempt to receive some type of payment.
Officials at Ace Relocation declined to comment.
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