The EasyEverything chain of internet cafés almost went bust, and has been saved only by an emergency cash injection of £15m from its founder, the budget airline entrepreneur Stelios Haji-Ioannou.
The cafés, which charge £1 an hour for internet access, have burnt through £40m since the first outlet was opened in London in June 1999, during the dot.com boom.
The injection of cash, in return for 1.5 billion new shares valued at a penny each, is a tacit admission that the company has lost 99 per cent of its estimated original value.
That means senior employees who originally put money in by buying shares for £1 have lost thousands of pounds: an investment of £5,000 would now be worth £50 on paper, and would only be redeemable if the share could be sold. Mr Haji-Ioannou, founder of the EasyJet airline, insisted though that it was a "fair package".
As part of the bail-out some branches outside the UK, and possibly some in British cities, will close, and some staff will lose jobs in the coming months when tasks such as dispensing computer time are automated.
Attempts to find venture capital partners or float the loss-making company had foundered. Now Mr Haji-Ioannou who yesterday boasted that he had "never closed a company" has increased his stake in the company from 75 per cent to 95 per cent, with the other 5 per cent owned by about 15 senior staff.
Mr Haji-Ioannou admitted the chain had made a string of elementary retail mistakes, such as having its shops too widely dispersed geographically, and wasting money on expensive shopfronts.
But he said the decision not to close the chain was not simply pride. "I'm an eternal optimist," he said. "And I have some personal wealth. I can afford to lose some money. But I really believe this business can become a very big one, because it's unique nobody offers this service for the price we do."
Mr Haji-Ioannou's fortune has survived the end of the dot.com boom largely intact, and is estimated at £1bn.
The chain of 22 stores will be cut back to concentrate on London, New York and Paris, and will focus on a "no-frills" internet service. But Mr Haji-Ioannou admitted there was still some way to go to push costs below revenue and become profitable. "We get 22 million customers annually who spend an average of an hour," he said. But the costs of dealing with those customers was higher than the £1 they paid for that hour.
His objective which he described in a memo to staff as "Mission Possible" was to cut costs to about 90p for every £1 of income.
The £15m investment values the company at just £15.8m, implying a huge reduction in its value from 1999, when it received £20m of financing purely to pay for computer equipment.
Mr Haji-Ioannou admitted the new company may need more finance in a few months if costs were not reduced. "It's another roll of the dice," he said. "It's double or quits."
Mr Haji-Ioannou told his staff to accept reality in the face of falling stock markets across the world's main economies. "Even Bill Gates has seen his paper net worth come down in the last few weeks." Mr Gates, though, is still worth many billions and Microsoft's share value has not declined by anywhere near 99 per cent.Reuse content