Troubling Times for Some Internet Startups

It's been a rough season for some in the e-commerce crowd, as several consumer-electronics Internet startups find themselves amid changes. Last week, CyberShop.com announced that it will close the e-tailing sites CyberShop.com and electronics.net (created as a joint venture with Tops Appliance City, which is now under Chapter 11 bankruptcy protection) and sell these operations' remaining retail assets. At the same time, the company says it will launch an "Internet incubator" through the establishment of Grove Street Ventures to attract and develop startup Internet companies.

In a statement some might find ironic, CyberShop.com says that "Grove Street Ventures aims to identify and invest in attractive early-stage Internet companies and accelerate their development and product launches, while mitigating many of the pitfalls experienced by startups." In return for these resources and funding, Grove Street Ventures says it expects to receive a substantial equity position in the companies it works with.

CyberShop.com's Jeffrey Tauber says that "over the past few months, we have carefully analyzed the competitive e-tailing environment and the emerging Internet landscape. After exploring a number of strategic alternatives, we saw the incredible opportunity in our new Internet incubator strategy and came to the conclusion that it is in the best interest of our shareholders to focus our business on this sector." However, Twice magazine is reporting that electronics.net VP Richard Gilbert suggests that there may still be a future for the ill-fated venture.

A couple of months back we reported on a proposed merger between Harvey Electronics and CoolAudio.com. It now appears that both parties never made it to the altar; Harvey announced last week that it and CoolAudio.com have agreed to terminate their agreement in principle to merge. Franklin Karp, president of Harvey, stated that "The two companies were unable to conclude the negotiation of final terms of the proposed merger. Harvey is now reviewing its alternatives and developing a strategic plan for enhancing shareholder value."

And finally, AudioCafe.com appears to be taking its last breath: visitors to its site are still greeted with a "Happy Holidays" graphic. Last year, the Internet-based startup attempted to convert itself from a content-driven to an e-commerce site by adding electronics and shopping tools to its online menu. Late in the year, however, the company began experiencing financial troubles and quickly downsized to a skeleton staff.

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