E-Minds can't make e-money

Cash-strapped Electric Minds, the experiment in online community, may be just weeks away from closing shop.

Founder Howard Rheingold said today that the company is still in talks with potential buyers and he is hoping that it will be acquired. Yet the company's prospects, ironically when its strategy to build online communities for other businesses appears to be taking hold, are not good.

"Our efforts to generate further financing are iffy enough that it's time to warn the community that its home is in jeopardy," Rheingold wrote Friday in an online message.

"I am reasonably certain, but cannot absolutely guarantee, that we can keep this site up through June. In the next week or two, I will know more about prospects for July."

Rheingold, ever the advocate for online communities, continued by discussing how the community could survive without the site itself as an anchor.

True to its form, members of E-Minds, an ambitious online community focused on technology, came forward with a myriad of suggestions on how it could continue, including offers of help.

But the bottom line may be that E-Minds lacks the cash it needs to make it as a business. When Rheingold first launched the company last August, the Internet was a different place. Online communities still were new and venture capitalists seemed to be banging down the doors of entrepreneurs with bright ideas.

Now, as the heated days of investors bankrolling anything that mentioned the Web are pretty much over, E-Minds is experiencing this transition firsthand.

Merely two months ago, Electric Minds revamped its entire business model to branch out from a single Web-based community to a company that builds online communities for other businesses.

This seemed to be working well: Electric Minds snagged trophy client IBM, building online bulletin boards for the Garry Kasparov vs. Deep Blue rematch. Businesses continue emailing daily asking for E-Minds services, Rheingold noted.

But in April, the venture capital arm of Japanese software distributor Softbank decided against funding the start-up with $500,000 it had been promising since February, Rheingold said. E-Minds not only had counted on the money to hold it over until it could go for its second round of financing this summer, but it had already spent a good part of it.

The company immediately decided to lay off staff, but that wasn't enough, Rheingold added. "We spent money thinking [that] the bridge funding would take us to June."

Once Softbank pulled out, it was difficult to get others to invest. Rheingold repeatedly emphasized that even if E-Minds does go belly-up, people shouldn't draw larger conclusions about online communities.

"The leap you can make is it's really early on the Web for community," he said. "Venture funding wants ten times the return in three years. It's really silly to leap to the conclusion that this means community is not a viable business."