DrKoop.com gets an injection

... but investors say they were not told enough.

Troubled health web site DrKoop.com has been handed a $20m investment, saving the venture from sudden death.

Clubbing together, a group of four venture capital firms came up with fresh money and prescribed DrKoop.com a new management team, with Richard Rosenblatt as chief executive.

I can't imagine anyone in their right mind would want to invest in this company

Rachel Terrace, Jupiter Communications

Investors, however, were not sure whether this was a strong enough remedy. The firm's share price dropped nearly 20 cents to $1.563 - well below the 52-week high of $24.5.

DrKoop.com, with the former US Surgeon General Dr Everett Koop as its figurehead, has been hit by a string of bad news this year.

All the trouble boils down to the question how content providers can make money on the web.

Expensive portal deals

In order to attract readers to its website and make money through advertising, the company paid millions of dollars for the privilege to have prominent links on major portals like AOL.

This strategy, however, burned large holes into DrKoop's cash pile. Earnings have remained weak, and in April the site was forced to renegotiate its portal deals.

The firm also had to sack 35% of its staff, and warned that it might run out of cash by September.

A month ago, with the situation getting worse, DrKoop's chief operating officer and chief financial officer resigned.

The company has also been hit by a lawsuit from shareholders.

They accuse the company of misleading investors by issuing upbeat statements about its financial health, while sitting for more than six weeks on an auditor's report which raised "substantial doubt about [DrKoop.com's] ability to continue as a going concern.

Auditors PricewaterhouseCoopers delivered the report on 15 February, but DrKoop.com allegedly kept it quiet until filing it with the US Securities and Exchange Commission (SEC) on 30 March.

The SEC is now conducting an informal investigation whether the company violated securities laws.

And on Monday, the firm warned it would "not be able to continue to operate our business" unless it could secure fresh financing.

But the four venture capital groups, Prime Ventures, JF Shea Ventures, Cramer-Rosenthal-McGlynn and RMC Capital, hope that $20m is enough to turn the company around.

Analysts are sceptical, though. Rachel Terrace of Jupiter Communications said: "In theory it's the financing that they need, but they had a $40m loss and their revenue situation isn't going to change."

"I can't imagine anyone in their right mind would want to invest in this company", she added.