Market's swing trips Web firm

As investors' interest in dot.coms waned, Vitalcast.com was forced to change its strategy.

By KRIS HUNDLEY

© St. Petersburg Times, published July 11, 2000

K.C. Craichy wants everyone to know that Vitalcast.com, his alternative health Web site, is not dead. But there's no question it's on life support.

The young Tampa company offers online advice on herbal remedies and nutritional supplements -- and sells those lucrative products on its Web site as well. But like many other dot.coms, Vitalcast.com got slammed by the crosswinds when the investment climate abruptly changed in the spring.

At the beginning of the year, the company's executives were confidently preparing to raise $20-million, intended to be its last cash infusion before going public.

Then financing for business-to-consumer Web sites suddenly dried up and Vitalcast's game plan changed. Survival, not an IPO, became the goal.

"The market changed dramatically in the last quarter," said Craichy, who founded the company in early 1999; the Web site went live in January. "When the financing didn't come through, it became obvious that the best course of action was to align ourselves with a partner with significant assets in a similar space."

Translation: Vitalcast.com is for sale.

As chief executive Craichy puts it, the choice was either to adapt to the market or disappear, like the once-hot Web retailer Boo.com. Nor is his company the first health Web site to have problems. Drkoop.com, which once had a market valuation of $1.3-billion, is looking for a buyer or deep-pocketed backer to stave off bankruptcy.

Some of Vitalcast's investors said the company's troubles are far from unusual.

"We have at least two more companies in Atlanta undergoing some of the same problems," said Sig Moseley, president of Imlay Investments, which was responsible for $400,000 of Vitalcast's $4.6-million in initial financing. "The timing simply hasn't worked out. If we had been out there three months earlier, it would have been a totally different story."

So what now?

Vitalcast's assets include its Web site, where visitors can listen to live and archived radio shows hosted by 35 alternative health experts. Many of them criticize the medical establishment as too quick to prescribe expensive drugs and invasive surgery and too slow to recognize the healing possibilities of natural vitamins and herbs. Among recent offerings: Anti-aging Oxidants by Gary Null and Heart Disease by Dr. Eric Braverman.

More important than listening to radio shows or reading articles such as "Echinacea -- Falsely Accused," Vitalcast's visitors can buy. Items recently listed on the site include TwinLab Diet Fuel ($28.95) and Aubrey Eucalyptus Spa Bath ($8.95).

But Vitalcast's founder is the first to acknowledge that the Web site revenues so far have been minuscule compared to expenses. "We've sold a few hundred thousand dollars' worth of stuff," said Craichy, who declined to be more specific about sales revenue. "And we haven't attempted to sell any banner ads yet. That's not our primary revenue model anyway."

Vitalcast is betting that the big money will come from proprietary software under development that will give alternative health practitioners a customized Internet site that taps into Vitalcast's e-commerce capability. The practitioners will pay an upfront amount, now set at $500, for the personalized site, then a monthly fee to Vitalcast for site maintenance. In return, practitioners will get a commission on any product sales generated through their site.

Craichy said the customized sites will generate revenues and cross-referrals for Vitalcast. "It's low-cost customer acquisition," said Craichy, who expects Vitalcast to refer customers to its Web-enabled practitioners and vice versa. "And all these customers are using what we sell."

But Vitalcast's software, called Vital Pro, will not be ready until mid-August. Craichy has to keep that project on track -- and keep the Vitalcast.com Web site fresh and functional -- while the dollars dwindle. Though the company will continue to contract to broadcast alternative health radio shows, it's in the process of selling the only radio show it owned, Here's to Your Health with Deborah Ray.

"Deborah Ray is buying her show, though it's likely we'll continue to broadcast it," Craichy said. "Running a terrestrial radio show was a distraction and not our core business." The paid program airs in the bay area on WHNZ-AM 1250.

Vitalcast also has tried to make it through the cash crunch by cutting staff from 50 to fewer than a dozen. "We took it down to mission-critical staff," said Craichy, who declined to say exactly how many workers are left in Vitalcast's office. "Everything's running smoothly, with orders still coming in. But I have to say it feels much more like a start-up these days."

Meanwhile, Vitalcast has a Boston investment banker looking for a possible partner or buyer of all or part of the company. "The ones we're talking to now are all in the natural health space," said Craichy, who did not identify the parties. "Either one of these partners would be interested in Vital Pro."

Don Russell, chairman of CEA Management Association in Tampa, made a personal investment in Vitalcast and sits on the company board. He said he still believes in the company's concept and would be surprised if Vitalcast can't find a buyer.

"It's not a matter of no takers, it's a matter of price," Russell said. "What we have is quite valuable. Unfortunately, there were those who thought it was worth many tens of millions of dollars six months ago. Is it worth as much today? I don't think so."

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