The move also resulted in the company cutting 60 percent of its workforce, or 25 people.
The company, one of the early e-commerce players that has struggled as more and better-financed competitors entered the arena, closed its CyberShop site today and plans to discontinue its Electronics.net site in the coming weeks.
CyberShop, which sells discounted designer apparel, home furnishings and electronics, plans to honor its 30-day return policy, said Jeff Tauber, chairman and chief executive.
In launching its venture site, Grove Street Ventures, the company plans to officially change its name and ticker symbol in the near future to reflect its new focus.
"If you look at the whole e-tailing landscape, CyberShop has been 'Amazoned' and the cost to build a brand on the Internet has been enormous," Tauber said. "We thought we'd bring more shareholder value by being an Internet incubator. We're taking our intellectual and tangible assets to focus them on early stage investments."
Investors, apparently pleased that the company is exiting a business where it has been losing money, pushed the shares up as high as $7.06 in early trading. The shares, however, edged back a bit by midafternoon, leaving the company up $1.25, or about 24 percent, to $6.44.
But the company's share price has been on the decline since November, falling roughly 60 percent to about $5. During the third quarter ending Sept. 30, the company generated $2.8 million in revenue, up from $500,000 a year ago. But its loss widened to $2.2 million in the period from $1.2 million a year earlier. Meanwhile, the company had a negative cash flow of $5.9 million in the quarter.
Some of the company's problems also have been rooted in its ever-changing business model, leaving investors with a mixed message, said one analyst.
The company initially started as an online department store, but then focused on becoming a gift store. Then last March, the company announced it would close its gifts business and focus on selling discounted brand-name apparel and electronics.
"You've got to shift strategy as you see opportunity in the Internet space," Tauber said. "We think we have done a good job in shifting to what is important to creating shareholder value."
Meanwhile, it has yet to be seen if the company can successfully transfer its e-tailing skills to the venture capital world--an environment that already has some notable heavy hitters.
Grove Street will focus on early stage Internet companies and take an equity position in their operations, in exchange for funding. Tauber will serve as chairman and chief executive of the new company.
Tauber, whose background is in retailing, said he plans to leverage his experience in raising funds for his company to the venture business. He also said that Grove Street Ventures is currently seeking to add executives from the investment banking community to its management team.
Meanwhile, CyberShop had raised $11 million in the fourth quarter for general corporate purposes, but Grove Street plans to allocate some of those funds toward financing venture deals, Tauber said.