13-Jun-2000 Tuesday

Equipp.com, a San Diego-based Internet company offering a marketplace for manufacturing equipment, has begun to dismantle its business.

The company laid off all but a few of its 40 employees Friday.

Incorporated less than a year ago, Equipp.com shut down after chief executive Michael Coffin tried unsuccessfully to find new financing or sell the business.

"This was a good company with great people," Coffin said by telephone late yesterday. "We ran out of time, and the market turned against us. We kind of ran out of oxygen. That's our story in one gasp."

Coffin, a former corporate vice president at Pacific Gas & Electric, joined Equipp.com in December. Now, after seven months with the company, he's out of a job too.

The issue really is that machine tools is a niche business, said David Dinerman, a marketing consultant who assisted the company. "They had some great people, a lot of integrity, but I could never figure out how they were going to drive the numbers," he said.

Like many dot-com companies, Equipp.com was founded last year amid the go-go frenzy of the Internet gold rush. Now the euphoria has evaporated and some familiar, cold realities have descended on the Internet business scene.

"It all goes back to this frenzied environment we had in '98," said Peter Shaw, who became a management consultant after selling Sitematic, a San Diego-based Internet company, in a $16 million deal last October.

The stock market's sell-off in April forced scores of Internet companies to cancel or indefinitely postpone the sale of their stock through IPOs, or initial public offerings.

Many resorted to traditional sources of funding, but the financial climate nowadays has turned the search for additional financing into a survival-of-the-fittest contest.

"Now the air is out of the balloon and there's only a limited amount of resources available, so (financiers) have to decide which deals they really want to fund," Shaw said.

Kablink, a San Diego dot-com that offered customers a Web site for their digital images, went out of business less than two weeks ago. Other new economy companies grappling with old economy realities in San Diego are RealAge, SpinRecords, boxLot and CollegeClub.

Equipp.com was founded last year, the product of a brainstorming session that involved Oren Klaff, a seasoned entrepreneur and marketing expert; Don Firm, a longtime executive in the machine tool industry; and Ron Taylor of Enterprise Partners, the San Diego venture capital firm.

Taylor said the idea, similar to many Internet businesses conceived in late 1998 and early 1999, was to provide an Internet site to link buyers and sellers of machine tools.

"They were looking for industries that were highly fragmented, with what they called `painful procurement practices,' " Coffin said.

While they faced no competition at the time, Taylor said they suspected that other groups of smart people were thinking along the same lines.

"When we funded Equip almost a year ago, there wasn't any competition," Taylor said. "But by the time we went live in January with our Web site, there were probably five or six. And as it happens, only a couple are going to make it."

Enterprise Partners invested about $7 million to finance the idea, along with several individuals who put in as much as $50,000 each. Now it seems likely that much of that will be written off.

The firm was incorporated last July. Coffin said the founders built Equipp.com's online business to $1.5 million in sales and more than 19,000 customers. The company charged a percentage of each transaction arranged through the online site.

Taylor said the company faltered in two key areas.

Equipp.com needed to quickly form an alliance with one of the major auction houses handling industrial equipment sales. It also should have allied with a major equipment manufacturer, such as Caterpillar or Parker Hanafin.

Others moved more quickly.

When the company sought a second round of financing, Coffin found the wells had gone dry.

Coffin held talks with Online Asset Exchange, a rival San Diego company backed by Lee Iacocca, and ZoneTrader.com, a Minneapolis-based e-commerce site offering telecommunications and office equipment.

By June 5, Coffin thought he had the deal sewn up with another privately held Internet company, which he declined to identify.

But the deal unravelled late that night, when an initial public stock offering the other company had planned for September was withdrawn.

"Like many companies, they were looking to their IPO as the liquidity event that would provide them with the capital they needed for expansion," Coffin said.

The buyer has sufficient cash to fund its own operations for about 10 months. Coffin said "the specter of adding our burn rate to theirs significantly impacted the deal."

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