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Investors' loss of confidence in Internet ventures began in mid-March in the U.S. By the end of April and early May, the mood change began to hit France. In May, British e-tailer Boo.com failed, followed by Living.com in the U.S. and France Alidoo, a portal for pets. In August, it was the turn of Britain's Clickmango. "Dozens of companies that raised money -- and now are running out of cash -- are failing in the U.S.," says Alexandre Mars, CEO of Paris-based venture-capital group Mars Capital, which has invested in six U.S.-based startups. According to Mars, the situation is now critical for outfits that have burned through cash trying to win clients but haven't brought in enough revenue -- the majority of companies created in the past 18 months. "Venture capitalists are finally catching up to the entrepreneurs," says Mars. That means valuations of young companies are coming down to earth. To what levels? "From five to six times annual sales for companies that already have clients," according to Jean-Luc Rivoire, head of French incubator Tocamak. MORE SURVIVORS? The situation in France is still far from bleak, though. "Venture-capital funds have raised new cash this year and are going to be able to invest it [in worthwhile ventures] without waiting years," says Alain Lévy, CEO of French B2B incubator Startup Avenue. But ventures are likely to be less risky and more mature than in the past, says Lévy, which means that more are likely to survive into the second round of financing. Companies that have proprietary and cutting-edge technology and can demonstrate rapid profitability will likely be the most successful in attracting cash. And telecoms, software publishers, and services companies are all still favored by investors. "Companies that sell services needed by the big, traditional e-commerce players in order to hold on to their customers are going to get by," says Mars. That's the case of Esual Software. It raised $3.2 million in August to help it sell "site enhancers" for e-commerce outfits. Netsize, a publisher of WAP applications based just outside Paris, is another example. Even less mature companies, which may still have no clients, can have their moment in the sun -- as long as they have a focused economic model and don't need a huge commercial or logistic push to take off. Paris-based Baobaz is one: It offers online e-biz sites a quick way to access consumer opinion. ACCEPTING THEIR DESTINY. The future may also be bright for more modest outfits, even those positioned in the hard-hit B2C (business-to-consumer) sector. Super-secretaire.com, an information and service site aimed at secretaries and office assistants, is now 18 months old and has 12 employees in Paris. "We've never had the intention of going public," says Grégoire Cusin-Berche, Super-secretaire.com's CEO. "We're just trying to raise the entry barriers to potential competitors by keeping our employees happy and by investing in the services we offer to clients. We still have only about 150 clients, but 98% of them stay with us, and we are just about at break-even." So the time when startups without clients or revenue could snag venture capital is over. Startups now have to accept their destiny as small and midsize businesses -- with the survival rate of small businesses anywhere. According to the 2000 edition of The French Economy, published by French statistics organization INSEE, as many small and midsize businesses disappear every year in France as are created. Although some worry that the entrepreneurial enthusiasm that has gripped France since early 1999 might evaporate, the situation is probably just returning to "normal." As Startup Avenue's Lévy says: "There are still a lot of B2B and B2C projects in the pipeline." In electronic marketplaces alone, says Lévy, there are at least 10 outfits in France about to open. By Cecile Ducourtieux |
