US dot-com startups are heading towards bankruptcy faster than their European counterparts, according to a report published Monday. Thirty percent of the 273 US companies questioned are expected to run out of money by the end of next quarter, while European startups have significantly slowed their spending.
The US study conducted for US financial publication Barrons, predicts the bankruptcy rate of US startups will continue to increase over the next 12 months. A comparison study by London based business consultants PricewaterhouseCoopers (PwC) found European dot-coms to be a lot more cautious in the spending of their venture capital.
The PricewaterhouseCoopers Internet 150 report, published last week, showed the average burn rate for European startups to have significantly decreased since last December. Meanwhile Barrons found a seven percent rise in American dot-com bankruptcy since last quarter.
Hugh Brown, partner at PwC, argued: "You can't dissociate these findings from the lack of encouragement given to entrepreneurs in Europe. A lot more is done to foster startups in the US.
"In March 2000, UK dot-com share prices dropped below the issue price, resulting in a lack of confidence amongst investors. Startups became concerned about raising additional finances later on, and therefore needed to manage their cash more wisely," he said.
Brown argued that people are now being more cautious about investing in dot-com startups, but they are just as keen. "There is no longer the old intensity of getting the money in quickly -- venture capitalists are now making a more informed investment."
Fifty percent of the Internet market capitalisation in Europe came from IPOs at the beginning of this year, meaning that European dot-coms still have money in the bank. Within the US, money was raised last year, and so companies are coming to the end of their cash.
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