# Flooz.com (1999 – 2001)

- URL: https://girisimcikafasi.com/en/startup-graveyard/flooz/
- Sector: Fintech
- Country: United States
- Total funding: $35 million
- Cause of closure: No market need

## What did it do?

Flooz.com was a New York-based dotcom start-up that tried to create a virtual currency for online shops. Users earned flooz credits as promotions from certain sites or bought them directly, and could then spend them at participating online stores. The company was promoted with television adverts starring Whoopi Goldberg.

## Why did it shut down?

Flooz was never adopted widely enough by either merchants or consumers; without broad acceptance, its usefulness and appeal stayed limited. In 2001 the FBI told the company that a Russian and Filipino organised crime ring had bought USD 300,000 worth of flooz with stolen credit cards to launder money. According to founder Robert Levitan, by mid-2001 19 per cent of consumer credit card transactions were fraudulent. The company burned through venture capital reported at between USD 35 million and USD 50 million and announced its closure on 26 August 2001.

## The story

The name Flooz was derived from fuloos, the Arabic word for money, and the idea behind it was at least as ambitious as the name: to create a currency that worked only in online shops. The New York-based company was started by Robert Levitan, one of the co-founders of iVillage; the site went live in February 1999. The model resembled airline mileage programmes or supermarket loyalty cards.

Users could earn flooz credits through promotions offered by certain internet companies or buy them directly from flooz.com. The credits they accumulated could be spent on products at participating online stores. The company went big on awareness; the comedian Whoopi Goldberg promoted flooz in a series of television adverts. Over its short life the company was reported to have spent between USD 35 million and USD 50 million in venture capital.

But a two-sided payment network needed merchants and shoppers to be persuaded at the same time, and that did not happen. Flooz was never adopted widely enough by either shops or consumers, and a currency without broad acceptance naturally remained of little use and little appeal. On top of that, in 2001 the FBI told the company that a Russian and Filipino organised crime ring had bought USD 300,000 worth of flooz with stolen credit cards and used it to launder money. According to Levitan, by mid-2001 19 per cent of consumer credit card transactions were fraudulent. The day after the closure announcement, The New York Times wrote that the company may have been a victim of fraud.

Flooz announced its closure on 26 August 2001. Unspent credits became worthless overnight and were not refunded. Around 325,000 creditors were reported in the bankruptcy proceedings. The closure was read as one of the early signs that the dotcom crash was deepening.

Flooz's story shows the hardest problem for payment and wallet start-ups: a payment network has value only if both sides are on it. And growing without strong fraud controls can make losses rise faster than revenue.

## Lessons

- In a two-sided payment network, win one side completely first (for example, a specific group of merchants); trying to persuade both sides at once burns money fast.
- For any product where balances are topped up by card, put fraud controls in place before launch; fraudulent transactions can grow faster than the business.
- If you hold user balances, plan from the start what happens to that money if the company closes; otherwise you will face thousands of creditors.

## Sources

- [Flooz.com](https://en.wikipedia.org/wiki/Flooz.com)
- [E-Commerce Report; Seller of Online Currency May Have Been Victim of Fraud](https://www.nytimes.com/2001/08/27/business/e-commerce-report-seller-of-online-currency-may-have-been-victim-of-fraud.html)
- [Where are they now? New York City's Dot Com Entrepreneurs: Part One](https://thenextweb.com/news/where-are-they-now-new-york-citys-dot-com-entrepreneurs-part-one)