The Internet economy is peppered with companies that made it big, really big, at breakneck speed - Amazon.com (AMZN), eBay (EBAY), Netscape and Yahoo (YHOO), to name a few. But even in frothy Silicon Valley, Webvan Group has set a new standard in size and speed, propelled by an unprecedented frenzy of spectacular high-stakes strategic moves and investments.
It was only three months ago that the Foster City, Calif.- based online grocer, which was slated to go public last week with a valuation of roughly $4 billion, opened for business. Yet Webvan has already raised more than $400 million, signed a contract for $1 billion to build 26 massive distribution hubs around the country, attracted Internet luminaries to its board and hired the chief executive of the world's largest consulting firm, a man once in charge of 65,000 workers. While it has become routine for Internet companies to go public months or years before getting in the black, Webvan has had few sales, let alone profits. In fact, Webvan at this point is little more than a daring, huge and unproven idea - hitched to a bunch of vans.
"I've never seen anything quite like it," says Internet veteran Jim Barksdale, former CEO of Netscape Communications and an investor in Webvan rival HomeGrocer.com. "It's amazing. I think they've done a great job."
If nothing else, Webvan has been stellar at selling itself in what is arguably the most spectacular example yet of financial engineering, Silicon Valley style. Many of today's biggest technology and Internet companies are the result of innovative ideas that were nurtured with generous funding. But it's because Webvan's idea is so big and will consume so much cash that it stands as one of the boldest and riskiest gambles in Internet history.
Already, Webvan is surrounded by an aura of success - at least that was the case until last week, when the Securities and Exchange Commission forced the company to delay its initial public offering. The SEC was concerned about the disclosure of information in the company's road show that was not in the prospectus for the IPO.
Even so, few dare to really question the company. That's because the upstart has played the Silicon Valley game like a master, a game in which bold ideas dazzle, money breeds more money, and money from the "right" backer is worth more than just plain cash.
Founded in December 1996, Webvan is the brainchild of retail veteran Louis Borders, former chairman of Borders Books. Borders set out to turn the grocery business on its head, promising convenient home deliveries within a 30-minute time frame. He hopes to fulfill the promise by building massively automated warehouses that trim real estate and labor costs, boosting the grocery business' razor-thin profit margins. But Borders has hinted that Webvan's endgame is to deliver much more for customers and investors. If local grocery distribution works, Webvan's fleet of trucks could be carrying everything from videos and pizza to clothes from the dry cleaners. In that sense, Webvan could become a new type of company, as much a FedEx as a Safeway.
By the time it started to get press early this year, Webvan had raised $122 million from top Silicon Valley venture-capital firms such as Sequoia Capital (dossier) and Benchmark Capital, along with Softbank, Knight Ridder (KRI), LVMH and CBS (dossier). Borders spent nearly half the money to build a massive 330,000-square-foot warehouse in Oakland, Calif., that's equipped with more than 4 miles of conveyor belts that automate picking and packing of everything from lettuce to bar soap. Webvan opened for business June 2, its van fleet bringing groceries to about 10,000 homes in the San Francisco Bay Area. Deliveries are free for orders above $50.
The buzz grew louder just a month later, when the company announced an order with the Bechtel Group (dossier) to build 25 more warehouses around the country based on
