Web Sites Feeling the Money Crunch

Monday, February 12th 2001, 12:00 am
By: News On 6

SAN FRANCISCO (AP) — One year after raising $33 million and receiving the red-carpet treatment from adoring venture capitalists, Epinions.com ran into one cold shoulder after another in 2000, scraping together just enough to stay afloat during a sobering downturn in the Internet industry.

``I have worn out 10 sets of knee pads begging people for money,'' said Nirav Tolia, the product review Web site's 29-year-old CEO.

While venture capitalists continue to pour billions of dollars into the development of the Internet, only a trickle is going to the whiz kids who promised to revolutionize the world by peddling goods and information over the Web. Nowadays the hot investment spot on the Internet appears to be ``infrastructure'' — a catch-all phrase used to describe companies building tools that make it easier to surf the Internet.

E-commerce companies received $114.6 million, or 1 percent, of the $11 billion of venture capital invested in the Internet during the fourth quarter of 2000, according to data compiled by VentureOne and PricewaterhouseCoopers. A year earlier, e-commerce companies received $1.4 billion, or 11 percent, of the $13.3 billion that venture capitalists invested in the Internet.

Online content companies fared only a little better with venture capitalists. In the fourth quarter of 2000, venture capitalists invested $357 million in online content companies, a 49 percent decline from the $703 million placed in the same 1999 period.

In a rare vote of confidence for a consumer-focused Web site, Epinions recently managed to secure $12 million in venture capital from BV Capital, Benchmark Capital, August Capital, Goldman Sachs and Allen & Co. The company believes this latest cash infusion will be enough to keep operations going until the end of the year, by which time it expects to be profitable.

Still, not all the employees who helped build Epinions' site will be around for the rest of the journey. Just before the company secured the venture capital, Epinions laid off 24 employees, representing a 27 percent cut in its payroll.

Since last February, 77 e-commerce and online content companies have failed, according to a ``Dot-Com Flop Tracker'' run by the Industry Standard, a San Francisco-based magazine devoted to the Internet economy. Virtually all of these unprofitable companies failed because venture capitalists refused to invest additional money.

``Venture capitalists are looking for a reason not to invest in (commerce and content) companies now,'' said Bill Gurley, a partner at Benchmark Capital.

In contrast, Internet infrastructure companies received $3.4 billion in venture capital during the fourth quarter, doubling the $1.7 billion that flowed to the sector in the prior year, according to VentureOne.

``If you are building a business around fiber optics equipment, you are going to attract a lot of interest. If you are a guy trying to develop a content or commerce site, it's extremely tough right now,'' said John Gabbert, VentureOne's director of research.


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