Digital Railroad: "It Is Not Over"

Posted on 10/18/2008 by Julia Dudnik Stern | Printable Version | Comments (0)

So says Digital Railroad shareholder and former vice president of marketing and sales Mark Ippolito on the heels of this week’s announcement of the company’s financial woes. On Wednesday, Digital Railroad notified its community that its recent attempts to obtain funding have not succeeded, and the company has initiated a cost-reduction process.

It is not surprising that today’s financial climate makes raising venture capital practically impossible. However, those using Digital Railroad services did not necessarily know that additional funding was needed to sustain the company’s current level of operations.

In order for Digital Railroad to continue to exist, it has to reduce operating expenses, said Ippolito, whose previous executive position is among the casualties of the cost reduction. No longer an employee, Ippolito remains invested and involved in Digital Railroad’s future as one of its shareholders—and he is not alone. “Many of us are hard at work to ensure the company’s future,” he said.

Though the Digital Railroad Web site still listed Charles Mauzy as chief executive officer and Maris Berzins as president at press time, both Mauzy and Berzins had already updated their online resumes—at networking Web sites Facebook and Linkedin—to indicate they were no longer with the company. Ippolito confirmed this, added that Digital Railroad investors have retained Mauzy as an advisor, and declined to further discuss the circumstances surrounding individual staffers’ departures.

Ippolito also confirmed that Digital Railroad has engaged the services of California-based Diablo Management Group, which works with troubled businesses to increase the value of their assets. Some pundits have already translated this mission as helping Digital Railroad’s financial backers recover as much of their investment as possible. In June 2005, Digital Railroad secured $5.2 million from Morgenthaler Ventures and Venrock Associates. In early 2007, these two venture-capital firms and pan-European investment company DN Capital joined together in a second, $10-million round of Digital Railroad financing.

Ippolito was unable to discuss the details of the services DMG is providing to Digital Railroad, but the consulting company’s line of business leaves little to the imagination: It manages reorganization and, if ultimately needed, the liquidation of intellectual property and other assets. DMG assumes fiduciary responsibility in most of its assignments, helps with fundraising and says that bankruptcy reorganization, sale or closure is necessary in 15% of the cases it handles.

Linking the events of this week to the demise of the PhotoShelter Collection less than a month ago is unavoidable due to the similarities of the two businesses, their near-identical predicament and, in no small part, Digital Railroad’s reaction to its competitor’s troubles. When PhotoShelter announced its exit from the stock business, Digital Railroad issued a responding statement that said its Marketplace was growing, the business was doing well and the future was bright. It also offered PhotoShelter refugees a discount on Digital Railroad services. Many of those that would be affected if Digital Railroad ceased to exist want to know what changed.

In response to this question, Ippolito said: “We absolutely stand behind the performance of the business, but investor decisions are out of our control.” He also pointed to the recent and drastic changes in the macro environment, which “we could not predict 30 or 40 days ago without a crystal ball.”

Digital Railroad promised to release additional information within a week. In the meantime, Ippolito stressed that the business continues. On Friday, Digital Railroad launched a new product, Marketplace Exclusives, as previously planned. “We simply announced a reduction in force. The existing support and technical teams, which have always been the core of the company, remain intact,” said Ippolito.

Copyright © 2008 Julia Dudnik Stern. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz


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