Banging on a Closing Door for ‘Dot-Com’ Funds

This wasn’t the reception Ed Mullen expected: Packed into a small room, a group of venture capitalists are attacking his “dot-com” dream.

He has just given a 16-minute pitch on IncredibleArt.com, a Culver City-based Internet firm he started about 18 months ago when the formula for success on the Net seemed unassailable: Just get an idea, attract some private money, then sell your stock to the public and become very rich.

But the easy-money days have passed for the virtual world’s entrepreneurs. The money men in the room--who together have nearly half a billion dollars to invest--are taking a hard look at Mullen. What they see is a 26-year-old Harvard grad selling posters and original art to hotels and corporations on the Internet. They’ve heard stories like this one before.

“I don’t understand. How are you ‘incredible’?” asks one Los Angeles venture capitalist. “Are you a bunch of guys selling Elvis on velvet, or what?”

“What do they do?” asks another. “I want to see what they do. Can you click on a painting?”

Mullen stiffens. The $2 million he raised from his own savings, family and other investors to start the business is running out. He needs big money now to keep his company alive--$10 million would be nice.

He stands alone with his laptop at the end of the conference table. His younger goateed brother and company co-founder Geoffrey sits nearby.

“It’s just too long,” another veteran venture capitalist says of Mullen’s presentation. “This could be a six-minute presentation. It should be very, very simple.”

For now, Mullen is humbled but not bowed. This was a mock presentation to get him ready for the real thing--a pitch to a huge conference of high-powered investors.

But the reality is sinking in: What Mullen once thought was a fast route to business success on the Internet is turning into a bruising fight he may well lose.

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The Mullen brothers are living the dreams--and nightmares--of untold numbers of Americans who are trying to make it as entrepreneurs today.

Like many new ventures, online or offline, the Mullens’ started with a simple idea that eventually pulled in their family and friends as investors and advisors.

Six months ago, an Internet business concept looked like a sure ticket to riches. Now, the financial markets are highly suspicious about anything dot-com.

Yet the Mullens would seem to have an advantage that many would-be entrepreneurs of five or 10 years ago did not: America has never seen so much venture capital seeking new businesses to fund. As much as $60 billion is estimated to be in the hands of venture investors, looking for opportunities.

Eventually, the Mullens would expect to take the company public. But they won’t get to that point unless they persuade private investors to give them the capital to get the business to a critical mass.

The brothers want $5 million to $10 million in venture capital. Despite the deep pockets of venture capitalists, they still face long odds: Only one in 1,000 companies seeking venture money gets funding.

The Mullens figure their company has enough money to last six more months, given their sales trends and cash infusions from their original investors. Beyond that, without substantial new funding, IncredibleArt.com is likely to become another dot-com casualty.

Internet Offered Opportunities

Ed Mullen says he has loved computers since he was 8. He recalls his dad’s clunky TRS-80 with a fondness that most people reserve for their first red Radio Flyer wagon.

“Me and computers have always just clicked,” he says.

Ed, who was born in Wisconsin and raised in Florida, got his undergraduate degree in economics from Harvard. He arrived in Los Angeles to work in the investment management business. His father, an accountant and professional investor in West Palm Beach, Fla., helped open some doors for him.

“I was here in L.A. and my friends kept saying to me, ‘Ed, Eddie, when are you going to get in on this Internet thing?’ ” he says. “I thought, what am I waiting for? Never in history has there been the opportunity to make such vast amounts of wealth in such a short period of time.”

It wasn’t just the money, he says. He wanted to run a business. But the potential financial rewards, he admits, were a huge lure. He has dreams of buying a sailboat with the proceeds from a stock offering and emblazoning the name IncredibleArt.com on the sail.

Ed says he kicked around several business ideas--selling CDs on the Net or electronics or office supplies--but never pursued them.

Then he started talking about ideas with brother Geoff, now 24, who was working in new-product development at shoe giant Reebok International Ltd.

They hit on the concept of using the Net to sell art.

“I used to to sit on the street in the French Quarter with my friends and listen to music and see the artists painting and the tourists buying,” says Geoff, 24, a graduate of the Freeman School of Business at Tulane University in New Orleans and a painter in his spare time. “I thought, ‘What if we could bring their art to everyone, on the Web?’ ”

Ed and Geoff are a study in contrasts, not unlike many siblings: Ed is intense, aggressive; Geoff is far more relaxed. Growing up, “they were as different as two boys can be,” says their father, Arnold, who sits on the advisory board of IncredibleArt.com and has invested about $250,000 in the business. “But even when they were younger they always talked about starting some kind of business together.

“They complement each other. Geoff is the creative, artistic one, and Eddie the more technical, computer-minded,” Arnold says.

When they agreed to join forces in business, the brothers vowed that whatever happened in the company, they would not let it ruin their personal relationship.

“I was very concerned. Their long-term relationship is a lot more important,” says their mother, Shirley.

The family boasts a long line of entrepreneurs on both sides. Arnold’s grandfather started a supermarket in Milwaukee. Shirley’s parents, European immigrants, ran several taverns in a nearby suburb.

With their own capital and money raised from family and friends, the brothers launched their business from Ed’s Marina del Rey apartment in October 1998.

Ed handled the technical side, designing the Web site and taking care of financial and legal issues. Geoff did the market research and began lining up suppliers--individual artists and publishing houses.

Their business model was to get exclusive contracts with various artists for original works. For posters and prints, IncredibleArt.com contracted with art publishers worldwide and signed up framed-art manufacturers that would typically sell to such retailers as Pier 1 Imports.

The company operates with a “virtual inventory”: It never actually touches the art. A poster ordered online, for example, is shipped by the publishing house or other vendor. IncredibleArt.com takes a cut of every sale, which varies in amount based on the supplier and quantity sold.

From Ed’s apartment the company graduated to a suite near the airport, then last year moved to a white sheet cake of a warehouse building in Culver City, with black iron bars on the windows. An orange bumper sticker that says “IncredibleArt.com, Don’t settle for ordinary art” is the only sign on the door to the headquarters, where the Mullens installed two dozen employees in a cavernous space. CarsDirect.com is around the corner, and the movie “Volcano” was filmed in a nearby warehouse.

The Mullens filled the warehouse with $10 desks and $5 chairs purchased from a once highflying technology company in Marina del Rey called Quarterdeck, now defunct. “As soon as I heard they were selling, I got a mover with a truck and ran over there,” Geoff says.

For the Mullens, like most entrepreneurs, their company has become their life. The only rule they have is a ban on sleeping in the office.

To get noticed, they have pumped out news releases, gone to trade shows and made contacts wherever they could in the art world. The effort has paid off: They say their Web site now gets 3 million hits a month.

But as the business has developed, so too have their rivals in the highly competitive e-commerce space--Masterprints Gallery, NextMonet, Barewalls.com and, of course, Art.com, to name but a few.

The Mullens are in a race to build name recognition. That means advertising and marketing. That means money--which is why Ed now figures he spends 70% of his time looking for capital.

“It’s a huge time suck,” he says.

“I’ve heard it takes $100 million to build a brand, and we have nowhere near that,” Ed says. “Not too many people know of IncredibleArt yet.”

Trying to Get a Foot in the Door

It’s January and the Mullen brothers are trapped in traffic on their way to ask multimillionaire art collector Michael Hadley Epstein to join their board of directors. This would bring them more credibility and add some crucial knowledge of the art world. “Someone like Michael, he could call his buddy at XYZ gallery or the head of some museum. He could really open doors for us,” Ed says.

Best of all, Epstein, who owns a large collection of modern art, might decide to invest in the firm.

“Let’s try to get him to do all the talking,” Ed tells Geoff. “And if he’s as good as I think he is, we’ll get him to be on the board. Maybe he’ll write a big fat check.”

They arrive in Brentwood almost half an hour late, after going the wrong way on the 405. Both brothers say they still don’t know their way around Los Angeles. A security camera peers down on them from the front porch. They are buzzed in. The door opens to lifelike sculptures by Marc Sijan of a tourist taking a picture and a woman carrying a Gap bag. From a second-story office, Epstein calls out hello.

They walk upstairs to the office. Epstein’s walls are covered with black-and-white Richard Avedon photos and classic Hollywood photos by George Hurrell. Epstein’s mother, Jane Bleyer, a model, was photographed by Avedon.

The Mullens sit uncomfortably in two crescent-shaped iron chairs. They pop open their laptop with the IncredibleArt.com presentation.

Epstein, deeply tanned and muscled, seems interested as the brothers describe their desire to bring art--but not mass-market art, they say--to the masses.

“Perhaps you know some people, or maybe we can get your assistance? We’re raising money now,” Ed says.

“How much are you looking for?” Epstein asks. Ed says $500,000 to $2 million.

“Well, I’m sure I’ll have more questions after I read the business plan,” Epstein responds.

Ed tries again to sell the Web site’s features: “We’re not a generic poster site.” But Epstein doesn’t seem to be biting.

The meeting lasts 30 minutes. No money.

Still, walking to the car, the brothers are upbeat. “I think it went well,” Ed says. “You have to know how pushy to be. I saw his eyes light up and we left him with more than 100 pages of material. I think he’ll bite.”

Making Another Money Pitch

It’s April now. Epstein did agree to join the company’s advisory board. But he never opened his checkbook. “They are smart young people, and now that I’ve gotten to know them better, there’s no question that the Mullen brothers are hard-working people,” Epstein says. But his respect can’t pay IncredibleArt.com’s bills.

Recently, the company laid off five of its two dozen employees as it shifted its primary focus from retail art buyers to corporate buyers, to sharpen its focus. Yet raising capital still has proved frustrating. Investor Harry Chandler, an executive vice president of GoTo.com Inc., put less than $100,000 into the company early on and introduced the Mullens to big-name venture investors in Silicon Valley.

But no venture firm has stepped up. “I think it was the category,” Chandler says. “E-commerce had fallen out of favor, and people were moving on to the next big thing.”

Now, the brothers have another shot. They’re gearing up for a major money pitch to the Southern California Technology Venture Forum, an event designed to help fledgling companies get money. Twenty-five companies are chosen to make presentations to 500 investors, lawyers, accountants and others.

Ed Mullen has already been through the wringer, making mock presentations in front of venture capitalists to hone his delivery.

Still, “I’ve never spoken to a group this big before,” he says.

Just hours before Ed’s presentation, things aren’t going well. The brothers had to be in downtown L.A. at 6:30 a.m. after learning the night before that there was a computer glitch: The software they wanted couldn’t be ready.

“I’m just so thankful I have Geoff here,” Ed says. “He brought in his own laptop, set everything up, and I think it’s going to be OK.”

Ed is wearing a gray suit with a vest; he thought it would look “kind of arty.” He and Geoff huddle alone near the stage of a large ballroom in the Bonaventure Hotel.

Marc Bautil, chief executive of ILanguage, a Santa Monica Web translation service, precedes the Mullens. He talks about needing $8 million. The crowd gets bored. Cell phones go off.

Then Ed takes the stage, under a large Powerpoint image that says: “An Incredible Investment!” The presentation goes on without a glitch. Ed talks about the company’s expectations for sales of $2.5 million this year and $10 million next, and gross profit margins of 30%, He promises to break even in the second year after a capital infusion. He notes that art is a $30-billion-a-year market.

A venture capitalist in the audience, so critical of Ed in the mock presentation he did in March, praises him, though he doesn’t plan to invest. “If only he had a dollar for every time he said ‘incredible,’ they’d probably have the money they need,” he says.

Afterward, Mullen is on an entrepreneurial high. “I feel great,” he says. “I could do it all over again.”

But months after the presentation, no major venture firm has stepped forward. The Mullens are as far from their goal as ever. The brothers haven’t taken salaries for themselves in six months. “I’m definitely using the credit cards to help” stay ahead, Geoff says.

Now, their early investors, including Chandler, are thinking about selling or merging the business if money doesn’t materialize soon.

What will he do if the company fails? “I’ll take some time off--and start the next company,” Ed says. Despite the risks, he says, “This is what I live for” now.

“After a long rest by the beach somewhere,” Geoff says, he, too, would want to join another start-up.

“It’s in my blood,” he says.