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American Law Review
     Established 1890  

March 19, 2001
When You Get Friends & Relatives
To Invest in your e-Firm

And You Lose It All
What Never To Say!
Howard E. Hobbs, J.D., Ph.D.

   LOS ANGELES - When Alec Hudnut and his partner, Tom Geniesse, decided to start an Internet business they had marvelous dreams and a little financial backing and some well-heeled friends and relatives.
     Mr. Hudnet says he borrowed $500,000 from family and friends and set off to make the world wide web his own personal oyster.      His idea was to sell business schools on Internet training to schools. But, just as he was setting-up his bank account the economy went bust and the flow of venture capital from friends and relatives evaporated overnight.
    By that time, however, Hudnut had formed the business he called University Access (UA). And by that timeUA had no business and a lot of debt. To save face and UA from immediate bankruptcy, Hudnit hit upon the idea that instead of begging for funding from people he already owed, he migh look to other sources of freemoney to bailout his ill-timed venture.  Mr. Hudnut flips a coin! 
  So, Hudnut decided to change the major focus of its business, to what he hoped would be a more lucrative business name, he changed the mission from university online coursses to corporate online courses.
     Hudnut's new focus would no longer be on university accredition and univsersity professors with doctorates. Of the percipitous change in business plan, Hudnut later said it was all about money, "You have to keep getting funded or you die ... when you are a young company, that means getting funding."
     Hudnut is now reporting that that Quisik is still not out of the "red" but " might be only a year or so from being a profitable company."
     Hudnut was recently attending a Wharton School seminar in which he attempted an explanation for his business reversals. He explained those in attendance. He described his business experience as a metaphor for a game in which investors would offer him a dollar of their own money to purchace a company and then they would flip a coin to see how well they would do.
   " The first flip - if it were heads, that would double their money. If it were tails, that would quadruple it."
    "The second flip - if it were heads, that would double their money again, and tails would raise the return on their investment by a factor of 10 times."
     "The third and final coin flip - If that were heads it would drop their take by 90%, while tails would only cut it in half."
     Mr. Hudnet, concluded, "Phase I was the early stages of Internet business funding, with significant amounts of money and some good ideas that were funded well. Then came Phase II, the real Internet boom, when "you didnít even need a resume," Hudnut said. "Money came from everywhere Ė lots and lots of money." But then came Phase III, the "death of the Internet." No one was investing much money anywhere."
    However, Hudnut said, for "Quisic itís Phase IV.  E-training is in a rapid consolidation phase and we are the players looking for mergers and acquisitions."
     He said that, for him, understanding funding is essential, and that knowwledge shifts over time. "Your business strategy cannot be dreamed up in isolation.  Hudnut said Quisic will eventually get back into doing academic training. Rightnow, corporate training sessions are "a lot more lucrative". The corporate side pays $100 an hour, he said. "On the academic side, maybe itís $5 an hour per student, so you need the volume.
    The Tuck School, in partnership with University Access (Quisic originally went under the name "University Access") contracted for an online version of real-time program in November. But by August 2000, Hudnut was finding it tough sledding. He then changed its name to "Quisic" in hopes of obtaining fresh grants to offset financial reverses by the operation. With the newidentity, he was able to manuever financing which he spent on purchasing Internal & External Communication Inc. (IEC) from its Amsterdam-based parent company, Wolters Kluwer.
     The acquisition of the 17-year-old corporate training company was, perhaps, the first real step in bringing Quisic closer to its goal of paying its own way if the economy didn't fall into recession.
     The acquisition was completed through a combination of some new cash but largely stock that Hudnut said had a street value "exceeding $10 million in 2000."
     Then the economy began to slide. The down-side on financing e-training by loans from relatives and personal associates and corporate grants is the relatively high cost of the delivery system in relation to the relatively high risk of ununstable economy at any given moment and the liklihood of failue of management to see the inevitable downside of nearly all new traditional business venture, especially that of undercapitalized and novel e-business model.

    [Editor's Note: Quisic, is now based in Marina del Rey, California. It is now marketing online support for management services and business solutions.]

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