|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | JANUARY 24, 2003 VENTURE CAPITAL The Start of a Dot-Comback? By small and cautious degrees, VCs are once again opening their wallets to netrepreneurs. This time, however, reality rules
FreshDirect isn't the only fledgling dot-com attracting investors. Over the past six months, VC firms have started wading back into a sector many had given up as a lost cause. They're moving cautiously, though. According to industry tracker Venture Economics, VCs invested only $850 million in some 110 new and existing companies last year. During the boom's peak in 2000, VCs pumped $13.1 billion into 750 companies. JUST THE TICKET? "Maybe there weren't as many great dot-coms as people originally thought," says Jay C. Hoag, founder of Technology Crossover Ventures, a Palo Alto (Calif.) VC firm that last month invested $15.3 million in online movie-ticket service Fandango. "But that doesn't mean all of them are bad ideas." What's drawing the VCs back into the fray? In large part, they're rewarding dot-coms' newfound focus on the bottom line. Most VCs say they are looking for strong transaction-based dot-coms that can persuade hordes of people to pay regularly for a service or product, such as tickets or online games. "Investors today are obviously concerned about reality vs. fantasy," says Fandango CEO Arthur Levitt III. "They want to see a proven track record and strong fundamentals." That's what Hoag and his partners saw in Levitt's 3-year-old company. Although it had taken a while for Fandango's business to catch on, it began to mushroom in the past year. By the end of 2002, Fandango was attracting 2 million Web surfers a month, according to comScore Media Metrix, driving revenues up threefold from 2001. WHERE THE MONEY IS. In part, it was the dearth of VC funds that forced dot-coms to get real. Take RedEnvelope, a company that specializes in last-minute gifts. In 1999, the year it was founded, RedEnvelope spent twice its revenues on marketing. This year, the company says marketing costs will amount to just 20% of revenues, or $72 million, up from $56 million last year. That's had two results: RedEnvelope expects to make money this year, and in October, it attracted $13.8 million in funding, much of it from the Boston VC firm Weston Presidio. For the time being, caution will prevail on the dot-com front. VCs will focus on seasoned private players or startups with models that mimic eBay (EBAY ) or trade in information. Still, more aggressive VCs, including Sutter Hill Ventures and Brand Equity Ventures, say they will risk money in such new areas as digital-photography services. For dot-coms, the message is clear: It's time to grow up.  By Heather Green in New York and Arlene Weintraub in Los Angeles Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | JANUARY |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
