The stock market will take a more cautious approach to the technology sector in 2001 but money will be available to the best companies, according to industry experts.
Ernesto Schmitt, president of online music portal Peoplesound.com, believes that many UK dot-coms will find it difficult to attract investment this year -- in contrast to a year ago. He says that the financial markets will demand proven success from a company before providing funds, and that retail sites will find it hardest to attract cash.
Schmitt's comments came days after accountancy firm KPMG released figures showing that 2000 was a bumper year for flotations on the London stock market -- despite the collapse in dot-com share prices.
"The markets are now more cautious than in early 2000, when over-exuberance meant that some companies who were not ready to go public were able to close successful IPOs", claimed Schmitt. "The market is going to be very tough in the first six months [of 2001]."
However, Schmitt reckons that despite this some technology companies will successfully raise funds in 2001.
"I think that hardware and infrastructure providers will do well. It'll be harder for content providers, and nearly impossible for e-tailers", Schmitt predicted. "Investors will want to see that a company works before they provide funding".
Despite last year's collapse in tech stocks, twice as many companies went public in 2000 as did in 1999, and twice as much money was raised through these flotations as the year before.
Research from KPMG released Monday shows that 138 companies floated on the London Stock Market in 2000. They raised £10.6bn -- compared to 1999 when 70 companies raised $5.4bn.
Neil Austin, head of new issues at KPMG corporate finance, agrees that technology firms will have to show some success before joining the London stock market, but believes that funding will be available. "Although tech companies must now demonstrate more solid business models, with profitability already achieved or not too far away, the market will make the money available to the right company", he said in a statement.
According to Dru Edmonstone, head of corporate funding at Durlacher and editor of the Durlacher AIM Bulletin, investors are still interested in the technology sector, but only at the right price. "The appetite is still there, but fund managers are now much more selective. They are still seeing IPO candidates but they are now putting fear before greed. If the price is conservative then institutional fund managers are very keen."
Edmondstone agrees that infrastructure companies will be popular in 2001 and tips software as a sector that could also perform well. However he believes the Internet retailer sector will show consolidation.
"There will be lots of merger and acquisition activity in e-tailing this year with dot-coms merging with traditional retailers, as we saw when Jungle.com was sold to GUS," he said, referring to the sale of the UK's second largest e-tailer to Great Universal Stores for £37m in September 2000.
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