Dot-com companies are closing at a rate of more than one a daygreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
11/16 13:32 Dot-com Shutdowns Hit 130 for Year, Claim 8,000 Jobs (Update3) By Randy Whitestone
San Francisco, Nov. 16 (Bloomberg) -- Dot-com companies are closing at a rate of more than one a day, eliminating 8,000 jobs since January, as the collapse in Internet stock prices chokes off the flow of capital keeping startups afloat, according to a new report.
As many as 130 dot-com companies have closed since January, according to San Francisco-based Webmergers.com, which tracks Internet mergers and acquisitions. And the pace is accelerating. Through the first half of November, 21 Internet companies closed, almost as many as during all of October, when a record 22 were shuttered.
Online retailers Garden.com, Pets.com, Furniture.com and MotherNature.com have all closed their doors in the approach to the holiday shopping season, victims of investors' reluctance to pump more money into businesses with little prospect of turning a profit any time soon.
``The capital drought has gone on long enough that more and more startups are hitting their fume dates,'' said Brian Horey, partner with Equity Growth Management LLC, a New York-based hedge fund, and a 12-year veteran of the venture capital industry.
The number of dot-com casualties increased today as TheStreet.com Inc., a financial news site, said it will fire 40 employees, or 20 percent of its workforce, and end its U.K. operation and its joint venture with the New York Times. In other cost-cutting moves, Audiohighway.com, which lets users download audio content, said it fired 21 of 30 employees, while Chapters Online Inc., a Canadian Internet retailer, said it cut 73 jobs, or 18 percent of its staff.
Three-fourths of the shutdowns this year have involved Internet retailers. Twenty-six companies serving the business market have also closed. More than a third of the shutdowns have come in California, with New York next at 11 percent, the report said. European shutdowns accounted for 8 percent of the total.
Because many companies raised their last round of funding before stock prices plunged in March, and because startups typically raise a year's worth of money at a time, shutdowns should continue into the first quarter of 2001, said Bill Burnham, principal managing director with Softbank Venture Capital in Mountain View, California.
``There's clearly about 50 public companies still out there that can't raise capital and they're running low,'' said Burnham. ``Could we see another 130 in total close by the end of next year? Sure, if market conditions don't change.''
About 1,500 to 2,000 U.S. Internet startups have received venture funding in the past three years, and more than 300 are public, he estimated. Some companies raised less than a year's capital in the first quarter because they thought they could quickly go public, and those companies have likely already failed or been sold. The companies now failing, he said, are doing so for capital reasons, not because of mismanagement.
Webmergers.com said many venture capital firms are busy tending to current portfolios and don't have time to act as matchmakers for struggling firms that might otherwise make attractive acquisition candidates. And traditional ``bricks and mortar'' companies haven't made a big push to acquire failing companies, it said.
``A fair number have inherently flawed business models that offer no value to acquirers, especially those which have their own problems to fix,'' said Horey of Equity Growth Management. ``The last thing a ship taking on water needs is another anchor.''
The Bloomberg U.S. Internet index has declined more than 50 percent from its peak in March. And initial public offerings, which raised an average of more than $18 billion in March and April alone, have since raised an average of only $7 billion a month.
Venture spending will likely fall in the current quarter for the second straight quarter, the first time that's happened in five years. Venture firms' returns in the second quarter fell to a nine-year low.
-- Carl Jenkins (email@example.com), November 16, 2000
As predicted by the Gartner Group a year ago.
Gartner Group forcasts
-- spider (firstname.lastname@example.org), November 16, 2000.