Today in Philly Tech History 2/10/1998: CDNow completes IPO

Tom Paine

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On February 10, 1998, CDNow, started in 1994 by twin brothers Jason and Matthew Olim out of their parent's basement in Ambler, completed its initial public offering. The online music retailer, which sparked a revolution in music distribution, closed the day up 37.5% at $22, from its opening price of $16. CDNow raised $65.6 million, and had a market capitalization of $342 million at day's end. Based in Jenkintown at the time it went public, it later moved to Fort Washington.

When it went public, its prior year revenue was $17.4 million, with a net loss of $10.7 million. Shortly afterwards, CDNow acquired its largest competitor, another Philadelphia area company named N2K. Revenue grew rapidly to a $150 million run rate, and CDNow was an early innovator in ecommerce and web marketing techniques.

However, as the crisis in the Internet economy materialized in 2000, investors lacked confidence in CDNow's financial performance and future outlook. The company slashed its workforce and soon sold itself (after a prospective merger with Columbia House fell through) to German media giant Bertelsmann in the summer of 2000 for $117 million. The brand later ended up with Amazon, and gradually faded away.

Mike Krupit, currently COO at startup Real Food Works, was serving in a CIO/CTO role for CDNow at the time of the IPO. He soon afterwards became COO and later CEO after Bertelsmann took over. He had already seen a couple of companies he had been with go public, including Infonautics. I asked him by email what things were like for CDNow at the time of its IPO. His response:

"CDNow was one of the first dotcom and ecommerce companies to go public. Obviously, we were thrilled to be able to put the money in the bank and have [it] to invest in our growth. But we also knew it didn't guarantee our success. It was tremendously exciting for the team, [though] as you'd imagine, the honeymoon doesn't last too long."

"Culturally, it's a double-edged sword. The expectations of the IPO isn't always met by the reality. The dream of the value of our equity is now something easily calculated. When the stock is up - great; when not, demotivating. We also had to stop sharing lots of information with the team. A lot of healthy chatter had to stop by being a publicly-traded company, which was a big change to CDNOW's startup culture."

Krupit told Technically Philly last summer that what ultimately killed the company was the planned merger with Columbia House; CDNow focused much of its resources on that and when it fell through there wasn't much of a backup plan.




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Change in direction at Novotorium; Mike Krupit leaving

Tom Paine

Langhorne, Bucks County-based incubator Novotorium is changing its direction, and losing the person who was the driving force behind its creation - General Manager Mike Krupit - it was announced yesterday.

Gary Baron, Chairman of Baron Innovation Group, which owns and funds Novotorium, will become the interim Managing Director, while the incubator shifts its focus to supporting wellness and healthy lifestyle businesses. This includes Baron's own startup, Healthy Food Now. Baron will be searching for "a seasoned senior executive from the health, wellness and nutrition community" to run the incubator on a permanent basis, the company said in a statement. Novotorium will continue to support the existing startups at the facility, Zuppler and TravelCare; and Baron’s core business, Voice Systems Engineering. The other members of the Novotorium team, Maria Collins, Alberto Janza and Chuck Hall will continue to be involved.

In an email sent to Novotorium supporters in which he announced his decision to leave, Krupit said, "After spending a lot of time and passion over the past year to get Novotorium off the ground, a series of events (dare I say “perfect storm”) has led me to consider my path and and redirect my focus".

Mike Krupit

Krupit described the Philadelphia region as "a pretty challenging startup environment". "Our model looked for bootstrapping companies at the launch and post-launch stage - and we struggled to find enough of them here. We ran into a lot of fences - geographic, institutional, financial. The startup communities in Philly, Princeton, and Lehigh have great spirit and camaraderie, but there is still a fair amount of insulation between entrepreneurs and the region’s big companies, universities, government, and capital".

Krupit also says he plans to continue working with startup businesses and "am now beginning such explorations". His LinkedIn profile shows him to be an advisor to Real Food Works, former Infonautics colleague Lucinda Duncalfe's new startup focused on plant based diets, an interest he personally shares.

Krupit, a New York City native with a computer science background, was an early member of the executive team at Josh Kopelman's first startup, Infonautics, and ended up running another renown area startup, CDNow, after it had been acquired by Bertelsmann.



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Infonautics alumni meet to share experiences and what followed

Tom Paine

Former Infonauts (L to R) Edwin Watkeys, Alan Preston, Ron Berg, Lucinda Duncalfe, Rick Mosenkis, Josh Kopelman,
Marvin Weinberger, Andrea Michalek, Rich Gallagher, Mike Krupit (photo courtesy of John Ashmead)

"The Infonautics Team & A Generation of Startups" was held this past Tuesday at Quorom at University Science Center. I had written a brief background piece on Infonautic's history prior to the event. Although I wasn't able to cover the event, Mike Armstrong of the Inquirer and Technically Philly's Juliana Reyes both provided excellent reports.


Although this event was certainly most worthwhile, co-sponsors Novotorium and Seed Philly subsequently announced they had decided to cancel most of the remaining "Entrepreneur Summer Camp" schedule, of which this was the kickoff event, citing what might have been an overly ambitious program competing with many other activities for a sometimes sparse summer crowd, as Novotorium's Mike Krupit explains. However, the Summer Camp Not-a-Hack-a-Thon Entrepreneur Sleepover on June 27 & 28 is definitely a go.

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"Entrepreneur Summer Camp" to kick off events with look back at Infonautics and what grew from it

Tom Paine

Life can be slow in the summer if you're in the city and looking for interesting tech events. Two business incubators/accelarators, though, Novotorium of Bucks County and Seed Philly of Philadelphia, are joining together to present Entrepreneur Summer Camp, consisting of a moderately priced series of weekly events featuring topics of interest to area entrepreneurs, plus the opportunity to opt into additional programs and
services the incubators offer.

The first event, to be held on the morning of June 12 at The University Science Center's Quorum, features a retrospective look back at Wayne-based Internet startup Infonautics, the people who came out of it, and the impact the resulting ecosystem has had in growing the Philly Tech community. Infonautics was co-founded in 1992 by Josh Kopelman, then a sophmore at Wharton, along with founder Marvin Weinberger, an entrepreneur who had previously co-founded Telebase Systems Inc., an online media company in Wayne. Weinberger was CEO and Kopelman was Executive VP with responsibility for sales & marketing. One of Infonautics' early investors and advisors was Howard Morgan, the former computer science professor at Penn turned VC who later co-founded First Round Capital with Kopelman and is a managing partner of the firm today.






Infonautics set out to become an online resource for children, providing curated content that helped young students learn and study. Its products included Homework Helper, delivered primarily via early online service Prodigy, and Electric Library, delivered via the Web. Infonautics did an IPO on the NASDAQ in April 1996 and raised close to $30 million, an offering that would be difficult for such a small early stage company to pull off today.


The company had difficulty selling a subscription-based service to a mass market, particularly as so much information was beginning to appear for free on the Web. In terms of technology, Infonautics also had to scramble to convert from the closed garden world of legacy online services such as Prodigy to the open Web, which really took off in the 1994-95 period. That transition, Novotorium GM Mike Krupit (who served as Infonautics' Director of Technology ) told me in a phone interview, spurred a period of tremendous innovation at the company. For example, Infonautics pioneered an early business model and developed related technology for managing affiliate marketing programs. And at a later stage of the company's history, in an effort to pivot, it developed an online service called "Company Sleuth", which I remember using. Company Sleuth allowed you to track several sources of records and information about a company that at the time were difficult to put together from one single email signup. And since the web was like a frontier then, with only slightly defined and rapidly evolving standards, Infonautics' staff was constantly looking for fixes or new ways of doing things.

Founder Weinberger, who Krupit described as a visionary, was a somewhat unorthodox businessman with penchant for dressing informally for meetings (not as common then as now), usually wearing an Infonautics baseball cap.




Infonautics posted 1996 results of $1.4 million in revenue and an operating loss of nearly $14 million. Its stock, which opened at $14, went down 19% during its first week of trading and was down to $2.38 by early 1997. The company was able to grow revenue to $23 million by 1999, but continued to have large operating losses. At the time, the technology infrastructure needed to run an online Internet service required significant fixed costs that were difficult to scale down. Employment at one point exceeded 130; a company 10-K indicated it reached about 80,000 paid subscriptions.

Josh Kopelman left Infonautics to start Half.com in mid-1999. Weinberger left in 1998 and started other ventures, some that worked and some that didn't. Also in that year, Infonautics began to sell parts of the company, selling its Education products group to Bell & Howell, gaining net proceeds of $18.5 million, and also ending up with a 20 % stake in bigchalk.com, the rest of which was owned by Bell & Howell. Infonautics intended to focus its resources on its Company Sleuth offering and other targeted personal information tools marketed under the Sleuth brand. The pivot to Slueth did not pay off financially fast enough, and in 2001 Infonautics merged with Tucows Inc., with the combined firm taking on the Tucows name. Toronto-based Tucows, which still exists today, specializes in domain registration and other Internet services.

Other pieces of Infonautics' product and IP portfolio ended up in different places; for instance, patent firm BTG acquired a portion of the patent assets of Infonautics covering navigational tracking on the Web and online affiliate programs. In fact, in 2004 BTG sued Amazon.com, BarnesandNoble.com, Netflix and Overstock.com over their alleged infringement of the patented Infonautics technologies. BTG apparently reached settlements with each of the four, with Netflix agreeing to pay an undisclosed sum (said to be millions of dollars in one report) in return for a non-exclusive license. BTG subsequently sold the web patents in 2006 for $5 million plus profit sharing, as it decided to focus on Life Sciences.

The event on the 12th, titled "After Infonautics: A Generation of Startups", will feature a panel of former Infonautics execs and employees discussing how their experiences there led to a number of other startups in the Philly area. Participants scheduled to appear include Kopelman, Weinberger, Lucinda Duncalfe (who went on to Destiny, TurnTide, Click Equations, and now Real Food Work), Krupit (who ended up running CDNow after Bertelsmann acquired it, and now runs Novotorium), Rick Mosenkis (VerticalNet, WorkZone), Ram Mohan (Afilias CTO and a member of ICANN's board of directors), Andrea Michalek (1800CTO, Topular, and a new startup, Plum Analytics), and Ed Watkeys (Half.com, Transmogrify, ActionX).

You can register for the event here. Additional Entrepreneur Summer Camp events will run through July 27.



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New startup accelerator, Novotorium, takes shape in Bucks; to launch next month

Tom Paine

Novotorium, a startup accelerator (a term it prefers over incubator) based in Langhorne, Bucks County, is preparing for a November 1 launch.

Novotorium comes from the vision of Mike Krupit, an experienced executive and entrepreneur. A native New Yorker, he worked in Silicon Vallley for a while before arriving on the Philly tech scene, working at Josh Kopelman's Infonautics in its early days and then becoming a key exec at CDNow, helping to manage its transition as CEO after it was acquired by Bertelsmann. The accelerator itself will be located in space leased by Voice Systems Engineering (where Mike had previously served as Chief Innovation Officer), in the old Lenox China Building. Gary Baron, President and CEO of VSE, will be funding the launch through his Baron Innovation Group. There is no public financing involved at this time.

Novotorium has a different business model than many incubators. Applicants
will be accepted for three month periods, which may be extended on a quarterly basis to up to 18 months, in which they will have free use of the space. There will be no upfront seed funding or stipends, but neither will there be an upfront equity stake for Novotorium or its partners or any fees. The ventures will get assistance and coaching from both Novotorium's own staff and its outside partners. Krupit plans to emphasize substantive product and market development work rather than "pitch coaching", he said in a phone interview with Philly Tech News. He is looking mostly for ventures that are either technology-driven or service businesses with a technology orientation.

He also has a preference for startups which have some operational track record or at least a prototype or beta test experience, rather than just being concepts on whiteboards. He says he hopes to have taken on 12 ventures by the end of next year, with perhaps 6 being active at any one time. Applicants will be accepted on a one by one, rolling basis, rather than in classes. After about six months he would like to see most ventures get $15,000 to $50,000 of funding, though there is no guarantee that will happen. If Novotorium makes a funding offer that the venture turns down, it may be asked to leave the incubator.

In addition to Krupit, Novotorium's staff consists of Chuck Hall (marketing & business development), Alberto Janza (technology), and Maria Collins, focused on communications, design, and UI issues. Several outside partners are lined up, but Krupit is not ready to name them.

Novotorium's floor layout emphasizes an open format designed to encourage collaboration. It features Herman Miller furniture, high speed wireless and wired Internet, big whiteboards, a conference room, casual meeting spaces, an Innovation Bar, full kitchen, professional gym, big screen TV and Wii. It also has data center facilities. They currently have 3,000 square feet, with the ability to quickly more than double that. Krupit also points out that its location provides good access to Philly, King of Prussia, Princeton and New York City.

As to whether there could be some bubbles emerging in the incubator/accelerator space, Krupit shares those concerns, but feels the riskiest area is in initial seed funding, which Novotorium is trying to minimize by focusing on startups with some track record.

Novotorium’s launch event will be on Tuesday, November 1, 2011, from 5-8 p.m, at its headquarters in Langhorne. You can sign up on TicketLeap here. You can begin the application process online here.



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