First Virtual Holdings, an ecommerce pioneer and one-time darling of high-tech speculators, announced on Wednesday that it has signed a nonbinding letter of intent to sell off a controlling stake in the company to a group of investors, including Softbank Holdings Inc., in hopes of generating enough cash to keep its doors open beyond this month.
If it can stay afloat, the company plans to be the first to bring transactions to your email inbox, in a deluxe version of spam.
"We needed to raise additional capital to fund our operations and develop our interactive messaging platform," said Todd Savitt, director of corporate communications at First Virtual Holdings.
The "interactive messaging platform" gives marketers a plug-and-play package of transaction and management tools for direct marketing to existing customers via email. First Virtual's VirtualPIN allows transactions to be carried out in secure fashion via email; other tools in the package facilitate digital receipts, order verification and tracking, and the like.
"The product we have is customized for each individual client and their needs," said Savitt, who would offer no other details about the new product.
"We plan to offer companies the ability to execute transactions within email without having to send customers to a Web site, and we haven't found anybody else that offers that type of service," said Savitt, who added that such capabilities represent "the future of email marketing."
Savitt said that the company would sell the controlling stake for 60 cents per share, but declined to say how much money the company hopes to raise in the sale. The company has more than 8 million shares currently outstanding.
No potential investors beyond Softbank Holdings were named, nor was a possible sale date named. Softbank Holdings is the US venture capital arm of Japanese conglomerate Softbank Corp. and has stakes in a number of tech firms. The company was named in a lawsuit last week, which charged it with fraud and breach of contract for alleged mismanagement of an Internet advertising firm it owned until December.
First Virtual's roots
For those who are confused, First Virtual Holdings is the same company that made waves several years ago when it began promoting a proprietary online transaction technology called the First Virtual Internet Payment System. The technology, designed to add security to online transactions through the email confirmation of orders using a personal identification number (called VirtualPIN), was one of the first stabs at facilitating online transactions when it premiered in October 1994.
Riding a wave of enthusiasm generated by its technology as well as that of then-competitors CyberCash and DigiCash, First Virtual hit Wall Street in December 1996, generating US$18 million in an initial public offering of common stock at $9 per share.
But the company's fortunes quickly took a downturn after its technology was rendered superfluous by other forms of transaction security such as IBM's Secure Electronic Transaction standard for credit card usage.
First Virtual's stock has recently traded at less than a dollar per share.
In the words of one industry insider, who declined to be identified, "They were essentially trying to create a new form of commerce; but it turns out the old one works just fine. The technology was good, but it wasn't required by consumers."
So the company changed course. Instead of simply offering a method of secure online payment, First Virtual set out to sell a package of email-based transaction services to businesses such as airlines and catalog houses.
"Basically, before they were generating revenues on a per-transaction basis and marketing to individuals and retailers. Now they're trying to build themselves a nice recurrent base of contractual agreements based on sending out bulk emails and getting paid per email, as well as generating revenues if that email is a hit and someone responds and transacts something," explained Michael Nemeroff, a research analyst at Lehman Brothers investment banking firm.
But by the time First Virtual changed directions, it was already looking at a nearly empty tank.
"The reason they're kind of behind the eight ball here and running out of money is that the money raised by the IPO was spent on their first focus; and they had to change focus toward a market that has a long sales cycle," said Adam Giansiracusa, an Internet analyst at investment banking firm C.E. Unterberg Towbin. "Now they're dealing with customers that are notorious for dragging their feet in signing deals."
Of course, before signing any deals, the company first needs a product to sell. According to Savitt, that won't happen until this summer.
Nonetheless, analysts believe the company's future isn't necessarily dim.
"There's still a nice logical structure to their business plan, but unfortunately their capital burn was more than they could handle," said Nemeroff. The new plan, he said, "appears to be something that, if they'd had the capital to move forward another couple of quarters, could have been successful" without selling off a controlling stake in the company.
Others agreed. "They just need to get a few signed contracts under their belts so they have enough customer references to fall back on to keep afloat," said Giansiracusa. "It's not that the market needs to mature; it's just selling a couple of large accounts.
"And to their advantage," added Giansiracusa, "I don't think that the companies [First Virtual is] talking to have other options on the table that they're mulling over."
