| BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| BUSINESS WEEK E.BIZ -- NET WORTH
The Net Is Finally Catching Eurodollars (int'l edition) Venture investing in e-businesses is exploding--and growing exponentially German venture capitalist Gert Kohler made a risky bet in 1995 when he put up $830,000 for 30% of the German Web software startup INTERSHOP. Founders Stephan Schambach and Karsten Schneider grew up behind the Iron Curtain and knew little about competing in the West. But Kohler, a partner at Munich-based Technologieholding, thought their inexperience would actually help on the Web, where traditional business models are turned upside down. He soon sent Schambach to Silicon Valley to set up a U.S. headquarters. The strategy worked: INTERSHOP Communications became the world's third-largest maker of e-commerce software, and after going public last summer in Germany, it achieved a market value of $1.9 billion. Technologieholding has cashed in stock for more than $400 million and still holds a $150 million stake. Kohler is one of the first European venture capitalists to rack up stratospheric returns on Web companies, but there are more on the way. Since January, fund managers have raised as much as $3 billion to pour into Net companies from Helsinki to Milan, according to London investment bank Broadview. That's a fraction of the $12.6 billion raised in the U.S., but it's an exponential leap for Europe, where the money raised for Net investing last year was negligible. Total venture investing in information technology is likely to double this year, to more than $6 billion, according to Broadview. ''The whole venture scene in Europe is lighting on fire,'' says William C. Schmidt, director at Advent International in London. If it continues at this pace, these investments in European startups could help haul Europe into the vanguard of the Net world and give a boost to its economies. Certainly, this new investment marks a huge cultural shift for risk-averse Europeans. As little as two or three years ago, technology entrepreneurs often failed to find venture capital in Europe. Now initial public offerings of Old World dot.com companies, from Britain's Freeserve to Italy's Tiscali, are changing Europe's business culture practically overnight. It's a transnational gold rush. French luxury-goods magnate Bernard Arnault, whose $500 million Europ@web fund launched in July, has backed the Swedish fashion retailer Boo.com, French wine seller ChateauOnline, and British music site peoplesound.com. Arts Alliance in London just closed a $92 million fund, Net Partners in London has raised $25 million, and Oslo's Venture Partners has nabbed $88 million. A new generation of venture capitalists in their 30s and 40s has ditched careers in consulting and other industries to focus on Net-based startups. Some are setting up American-style dot.com incubators that offer management counseling, financing, and networks to speed ideas to market. Karl-Christian Agerup left McKinsey & Co. in 1995 and built two Net-based startups. He now co-manages Venture Partners. ''Europe was less entrepreneurial than the U.S., but the Internet is changing that,'' says Agerup. How did all this happen? The Net came to Europe almost as soon as it came to the U.S., but the culture of investing in risky startups lagged far behind. Until recently, European entrepreneurs faced daunting hurdles: To win the confidence of well-heeled backers, they had to have world-beating technology and go global immediately. ''Now you can start a company in Europe and have a nice franchise,'' says Dennis Payre, co-founder of French software company Business Objects, which went public on Nasdaq in 1994. A key development was the rise of European small-cap stock markets. Until 1997, there was no European alternative to Nasdaq, the traditional home of young U.S. tech companies. Now, six countries have Nasdaq-style markets--led by Germany's Neuer Markt, whose listed companies now boast an aggregrate market capitalization of $81 billion. That has dramatically turned around investor attitudes. ''The most critical element is capital, and European entrepreneurs have it now,'' says Ronald Cohen, chairman of Apax Partners in London, which manages $2 billion in venture investments. One reason European investors are suddenly eager to ply entrepreneurs with money: Europe's wireless communications revolution has a good two-year lead on the U.S. Counting on that edge, Oslo-based Venture Partners is focusing all its investments in Scandinavia--a hotbed of cellular research and mobile-phone use. ''In some sectors, such as e-businesses tailored to cellular phones, Europe may well take the global lead,'' says Gerald Brady, head of e-business investing at 3i London. On the other hand, the woeful underfunding of the Continent's service industries creates vast opportunities to use the Net to reform inefficient markets. ''There is the possibility to leapfrog,'' says Net Partners co-founder Michele Appendino, whose London-based firm was one of Europe's first Internet seed-capital investors. Other European Net startups are targeting some of the same Web site categories that are thriving in the U.S.--but localizing them for Europe and trying out experimental new pricing schemes. Lastminute.com, for instance, is filling the vacuum for discount travel services in Europe. The company aggregates excess capacity for hotels, airlines, and other travel services and sells it at a 50% discount with 48 hours' advance booking. ''That business model was original. It wasn't possible with any medium besides the Net,'' says Agerup, whose Venture Partners bought a 5% stake for $1.6 million 18 months ago. To be sure, Europe's venture capital market is still on a learning curve. Weaker companies will fall by the wayside. But few believe those failures or stock market declines will seriously dim investor enthusiasm. ''We're just at the beginning,'' says German VC Kohler. ''Every day we see more innovative e-business concepts.'' Even if returns come down, the Net has helped Europe's venture capital market come of age. By GAIL EDMONDSON _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
RELATED ITEMS The Net Is Finally Catching Eurodollars (int'l edition) TABLE: Cash for European Web Companies INTERACT E-Mail to Business Week Online | |||
