Tech stock woes rocking Europe

The tech sell-off is forcing companies overseas to rethink their battle plans - and startups are feeling the heat to turn a profit now! The daily water torture on the Nasdaq is front-page news on this side of the Atlantic.
Written by Charles Cooper, Contributor

Industry leaders say the sell-off in tech stocks has forced many of them to overhaul their tactical -- and even strategic -- planning in response to heightened pressure on many startups to turn a profit sooner, rather than later. In other words, kiss any lingering pipe dreams of instant riches a fond farewell.

But most are taking it in stride, writing the buffeting off to the natural ebb and flow that naturally accompanies involvement in high-risk ventures.

"Tech is volatile, and people are rediscovering that fact," said Alexandre Alfonsi, the chief financial officer of Nfactory, a Paris-based aggregator of European content.

Of course, this summer -- and now autumn -- of tech investors' discontent has made Alfonsi's job that much more interesting.

He and executives of more than 100 other startups from Europe and North America now find themselves on the receiving end of tough questioning from venture capitalists, bankers, and prospective partners -- who are all taking extra pains not to get burnt again.

After the excesses of last year -- when companies with questionable business models often soared in value after going public -- Alfonsi says there was bound to be a reaction to the "craziness".

Still, he added, "I don't believe it's more than a major market correction."

That promises to be a major subject of conversation during the course of a three-day conference here sponsored by Dasar.

To be sure, there are Kafka-esque tales about the fickle reactions of the princes of high finance to current events.

Consider the example of Morten Rynning, managing director of a Norwegian Internet software company, who ran into a brick wall when he sought out venture capital funding earlier this year.

"They are like sheep. I spoke with one VC who didn't want to talk unless the company was doing B2C [business-to-consumer]," he said. "That was in February. In April, he was telling us that we needed to become a B2B [business-to-business] firm.

"If you're changing that quickly, how can you talk about making three-year investment decisions? They are making it hard, and we're getting hurt by their bad choices."

Tech stocks have lost anywhere from 25 percent to 75 percent of their value this year, the sharp declines beginning in March.

Yet while it remains a matter of debate whether the worst is over or there's still more carnage to come, Yoav Chelouche, the chief executive of Israel-based Scitex, says there's a silver lining in the current clouds.

"What it does is signal a back-to-basics emphasis," Chelouche said. "It means that more than before [the stock sell-off] companies need to focus on putting together a strong management team first. And it means they need to be paying more attention to revenue and profitability than before."

But it also means a lot of good companies are in danger of getting lumped together with the non-performers, especially when it comes to the IPO market.

Since the tech sell-off, tech IPOs have crumbled.

Pets.com, for example, which went public at $11, is currently selling for 63 cents and change.

Last week, Scitex was forced to delay a planned public offering of a company spinoff, in part because of the continuing declines in tech stocks -- and this despite a four-year, 60 percent annual growth rate by the unit.

See ZDII for US tech investor news.

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Lots of hopeless Internet startups have been funded by hapless venture capitalists in the last few years. The truth is -- Charles Cooper says -- we've arrived at a punishing phase of the Internet revolution where profits and strong revenue growth suddenly matter. Go to AnchorDesk UK for the news comment.

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