Borders and his associates launched Webvan in the San Francisco Bay area on June 2, 1999 with the assistance of more than $122 million in initial funding from blue-chip companies such as CBS and Knight Ridder and backing from prominent venture companies such as Benchmark Capital, Sequoia Capital and Softbank. Webvan's goal was to revolutionize the business of buying and selling groceries. Instead, the company ended up burning through over $1 billion in just two years and saw its stock drop from an IPO high of $34 to a few cents before it ceased operations in July 2001. Webvan made many misstates that lead to its demise, but perhaps the most costly ones were being ahead of market demand for online grocery shopping, spending too much to develop its infrastructure and pricing its services too low.
In Webvan's S-1 Filing in 1999, the company assumed that market growth for online grocery shopping would be tremendous, citing Forrester Research estimates that predicted online grocery spending in the U.S. would grow from $235 million in 1998 to $10.8 billion by 2003. Unfortunately, more modest projections showing slow short-term growth rates proved far more accurate as consumers showed more resistance for using the Internet to purchase groceries than other types of goods during Webvan's pursuit of the market (see Figure 1 and Table 1 ). .
Webvan's downfall was precipitated by acting on its misguided view of market demand. Instead of starting out small and growing over time, it formed a strategic alliance with Bechtel for aggressive national expansion of its infrastructure to twenty-six new markets within twenty-four months. Webvan's eventual entry into seven markets was expensive because it built highly automated distribution centers designed to process product volumes equivalent to approximately twenty supermarkets. Webvan spent forty-five million dollars on facilities in New Jersey, Baltimore and Seattle for operations that never even opened.
