Dr. Koop and The Bubble
In early 1997, an ambitious healthcare startup called Dr. Koop, which was founded by former US Surgeon General C. Everett Koop, went online. It was during the era when internet portals reigned, and the company spent its first year struggling to gain exposure. By the end of 1997, with no traction and zero revenue, it was running out of money.
On April 6th, 1998, the company closed a respectable $1M Series A financing. It wasn't enough, apparently, because just 22 days later, it closed another $6.8M Series B round. By the end of 1998, Dr. Koop had taken about $8 million in financing, made just $43,000 in revenue, and suffered a net loss of $8.997 million.
Nine months after the series B money was in the bank, and in desperate need of more cash, the company raised another $3.5M. It was January of 1999, at the height of one of the largest valuation bubbles in history, and Dr. Koop was running on fumes: with a burn rate of almost $1M per month, the company had less than four months of runway until it would be unable to meet its payroll obligations.
There was only one option. On March 5th, 1999, with $43,000 in revenue and 80,000 registered users, Dr. Koop filed its S-1 with the SEC to go public.
What Dr. Koop did, exactly, is not entirely clear. It appears to have been some kind of healthcare-specific web portal. The S-1 describes it like this:
Our website, www.drkoop.com, is a healthcare portal which integrates dynamic healthcare content on a wide variety of subjects, interactive communities and tools, as well as opportunities to purchase healthcare-related products and services on-line.
Fascinating how little it says with so many words. It continues:
Our company's founders, including former U.S. Surgeon General Dr. C. Everett Koop, created drkoop.com to empower consumers to better manage their personal health with comprehensive, relevant and timely information. Our objective is to establish the drkoop.com network as the most trusted source of consumer healthcare information and services on the Internet.
Again, nothing. But I suppose it doesn't really matter what it did.
On June 8th, 1999, Dr. Koop went public. The details:
$9.00 Per share
27,514,591 Shares outstanding post-offering
$247,631,319Initial market capitalization
$5,906,250Fees paid to underwriters
$2,332,260Fee paid to now-defunct Bear Sterns
5,759Revenue multiple (using revenue from 1998)
Its value popped up 83% on the first day–a “mildly positive review” from investors, as CNET eloquently reported–and it raised about $90 million. Now flush with an enormous stockpile of cash, Koop's top priority was to gain attention and drive traffic to the website.
Driving traffic back then wasn't very straightforward. In 1999, the portal sites controlled the internet. If you wanted traffic, you had to get featured or listed by one of the portals. Dr. Koop did what the other bubble companies did, and it entered into an agreement with AOL to get prominent positioning. How much did it pay?
$89 million per year.
Despite being prominently placed on AOL's portal, which drove an estimated 2.6 million visitors per month, Dr. Koop lost $82.5 million dollars in 1999. A few months later, in May of 2000, and with dwindling cash reserves, the company was forced to lay off 35% of its 185 employees. Its stock had fallen from a 52-week high of $45.75 to just $2.34 on May 18, 2000. In August, slightly over one year after its IPO, Dr. Koop was delisted from the Nasdaq.
For the next year or so, through 2001, the company experienced a series of setbacks. It ran out of money in August 2001, and was saved in the last hour–literally, three hours after it ran out of money–by a $20 million private equity infusion. It did nothing but prolong the inevitable.
On December 17th, 2001, embroiled in legal battles and sparking questions about healthcare privacy, Dr. Koop closed its doors.
Thanks to Dalton Caldwell for bringing Dr. Koop's hilarious S-1 to my attention (he says he brings it up when people talk about the current crop of tech IPOs). Here are a couple of my favorite excerpts:
On the platform:
The drkoop.com web platform consists of readily available, off-the-shelf, computer systems, including dual Intel Pentium servers in a fully redundant configuration. The drkoop.com web platform was designed using a proprietary architecture deploying primarily Microsoft technology running the Windows/NT Operating System. Other Microsoft web enabling technologies used in the drkoop.com web platform include the Microsoft Membership and Personalization Server (software that captures user data and enables the drkoop.com experience to be customized for each user), Microsoft SQL Server (database software used to store user data and content) and Microsoft Internet Information Server (software which enables pages to be displayed to the user).
The affiliates section, which suggests that Dr. Koop paid other sites to embed their content:
drkoop.com has entered into an agreement with Infoseek under which The Go Network will distribute health-related content to their users. Through this agreement, users on The Go Network will be able to access various health information, services, interactive tools and related commerce opportunities through direct links to the drkoop.com website. We believe that this partnership will contribute substantially to our brand awareness and traffic generation efforts. This agreement with Infoseek has a one-year term. We will pay Infoseek a fee for running a minimum number of content segments on its Health Center homepage.
On Dr. Koop's “Unique Features and Tools”:
Our website is designed to provide easy access to innovative features and tools. Currently, our most popular tool educates consumers on the interaction among various drugs and other substances. In addition, we recently acquired the right to deploy a comprehensive personal medical record which will allow users to establish and maintain a lifelong record of their health and medical information in a secure portion of our database. We intend to continue to add useful tools to enable our users to personalize their on-line experience. We believe that our tools and features will continue to encourage users to visit our website frequently and increase the likelihood of users selecting drkoop.com as their preferred website for health-related issues.
On the benefits as an ad sales platform:
We believe our ability to target specific users, the interactive nature of our website and the demographic characteristics of our users will be attractive to pharmaceutical, healthcare and other companies that advertise on the Internet. By identifying users interested in a particular health-related topic or who desire to address a particular health condition, we believe we can sell advertising in a highly targeted manner, thereby commanding higher advertising rates.
Under “Risk Factors”:
We were incorporated in July 1997 and launched our Internet operations in July 1998. Accordingly, we have an extremely limited operating history. An investor in our common stock must consider the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets, including the Internet market. These risks and difficulties include our ability to:
- attract a larger audience of users to our Internet-based consumer healthcare network;
- increase awareness of our brand;
- strengthen user loyalty;
- offer compelling on-line content, services and e-commerce opportunities;
- maintain our current, and develop new, affiliate relationships;
- attract a large number of advertisers;
- respond effectively to competitive pressures;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
If only they had been able to “offer compelling on-line content, services, and e-commerce opportunities,” maybe they wouldn't have failed.
. Thanks to Patrick Traughber for compiling these numbers.