"We were turning down investments beforehand, and a month later they weren't there. Does that mean our business was no longer viable? I guess maybe so, but certainly not much changed internally in that time."

Feel the Burn Rate

Although the acquisitions were all stock swaps, absorbing the staffs and operating expenses of those companies proved to be too much for CollegeClub's seemingly ample war chest.

Pousti says he was forced to resign by his board of directors in June because of "divergent interests." According to Pousti, he wanted to slash the staff to 100 in May to get cash flow positive quickly to help the search for financing as well as pursue a potential sale of the company. But the board wanted to keep the additional staff to make it appear more attractive to potential buyers, Pousti says.

"History will be written any way it needs to be written to protect people's interests, but at the end of the day, the board will be there for you while you are going the route they want you to go. But board members are also investors, and they want to protect their shares," Pousti says. "We weren't seeing eye to eye. Within a week from being great buddies, it was clear that their intention was to get me out of there so I didn't get in the way of what they wanted to do (sell the company)."

At about the same time DeBello exited. He refuses to comment on his experience with CollegeClub other than to say "it was an interesting chapter." With Pousti and DeBello gone and increasing pressure from creditors, CollegeClub conducted a hard target search for new and additional sources of cash. CollegeClub retained Deutsche Bank Alex. Brown to conduct an unregistered private offering, which failed to yield results. The company's financial advisors also tried to drum up money from a variety of sources, such as traditional lenders and competitors, only to be rebuffed. In an act of desperation, CollegeClub approached at least six debtor-in- possession lenders, hoping to secure financing as it attempted to reach profitability, which it predicted would occur by the first quarter of 2001.

With each potential avenue of financing turning into a dead end, CollegeClub's fortunes failed to improve and the company was forced to sell off some its assets at bargain basement prices, such as College Store Online for approximately $950,000 and eStudentLoan.com for $910,000, to meet its monthly expenses, including payroll.

Final Examination

Monte Brem, CollegeClub's senior vice president of corporate development, says ultimately it wasn't the amount of money CollegeClub spent but the new economy's ever-changing rules that put the company in its unenviable position. He says the way Internet companies were valued changed from site traffic to revenues to the now-ubiquitous path-to- profitability criteria, all within a matter of weeks.

"When you are doing planning as a senior manager in a company like that, where the goals that you are trying to hit to maintain your funding sources are changing on a weekly basis, it is incredibly difficult," Brem says. "And that's really what we went through."

Fisher says even if CollegeClub had trimmed its budgets by 20 percent, he is not sure the outcome would have been any different.

"Given the situation, had we saved a $100,000 here and $2 million there, it probably wouldn't have made much of a difference in the situation that we are in," Fisher says. "As crazy as it sounds, when you are dealing with a very large company spending a lot of money to compete, it wasn't only the money that put us in the situation we are in."

Pousti, who even after being banished from CollegeClub tried to attract competing bids to drive up CollegeClub's asking price during the bankruptcy proceedings, says no matter what happens to the company, he learned a great deal about running a business. If he could go back and do it over, Pousti says, he would change a number of things; specifically, he would spend less and garner enough revenues so the company could complete its IPO earlier.

"We didn't have enough revenues to go public earlier, but we had plenty of revenues when we filed," Pousti says. "Six months before that we didn't even have a sales team in place, and the reason for that was because we didn't think we could bring any real value to advertisers — we didn't have a critical mass of users yet. But a lot of people were out there selling junk. Maybe if we were just out there selling junk, too, then we could have gone public a little earlier."

But Pousti says that strategy might have backfired by losing unsatisfied advertisers that were brought in too early, which could have been followed by lost revenues and a collapsed stock price if the company had gone public.

The real shame, Pousti says, is that CollegeClub was well on its way to being profitable, logging revenues of $3.9 million for the second quarter of 2000, an almost 20-fold increase over the same quarter the previous year. He says the staff reduction to 100 employees he asked for in May finally occurred in August and because of that, CollegeClub is only spending $1 million a month and is on its way to profitability. The way he sees it, CollegeClub, which he still considers one of the premier sites on the Web, was lumped in with some of the less savory Internet players.

"There are, quote, Internet Ponzi schemes, unquote. If you have to spend 80 million bucks in marketing to get $60 million in revenue, well, you can fool people for a while when the market is hot," Pousti says. "They don't care; they throw their money in and you go public, and they get three times their money back. They don't care that you have a crappy model.

"Unfortunately, when the market shuts down, then the good ones like CollegeClub get washed down with the bad ones."

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