Garreau is experiencing the new reality of the New Economy, and he is not alone. Across the Mediterranean Sea, brothers Antonello and Gianpiero Girardi would like $250,000 to expand their tiny website concern aimed at Sardinian tourists, but they have already been turned down by 10 venture capital funds. And in London, Niko Komninos and E. David Anstee, co-founders of ihavemoved.com, sit in their offices behind Westminster Abbey and mull over how to secure $9 million in expansion money for their site, which helps people who are changing residences notify utilities and other service providers electronically. Potential investors are holding out for as long as they can. "They're squeezing us," says Anstee. "They know we don't have forever."
What a difference a year makes. Remember the buzz of early 2000? The Internet revolution was going to make the old order redundant: we were all going to bank online, buy clothes online and, if we couldn't be there in person, watch the weddings and funerals of friends online.
It was a new realm that promised enormous riches, and the entrepreneur was king. Employees of established companies jumped ship to join the Internet gold rush, their fledgling firms funded by venture capitalists desperate to get a piece of the next big thing. And as those companies listed on the stock markets, financial institutions got in on the act, driving valuations and share prices through the roof. On March 10, 2000, Germany's Neuer Markt, France's Nouveau Marché, Italy's Nuovo Mercato and the granddaddy of the high-tech bourses, America's nasdaq, all reached new peaks. Then the tide turned, taking with it many investors, market analysts and the brash young things with their big dreams. In the past year, the combined value of all nasdaq stocks has fallen by more than $3 trillion. On this side of the Atlantic, the combined value of stocks in London's ftse techMARK 100 index has dropped by over $93 billion. In the markets, black humor has replaced boundless optimism, and the word dotcom has become first dotbomb and then dotgone.
Out of the wreckage has emerged a vastly different landscape, where Old Economy companies, values and business fundamentals like real revenues and profits have reasserted themselves, and where risk and euphoria have been displaced by disillusionment, caution and blame. "It was an expensive lesson," says Bernd Hardes, a venture capitalist who co-founded ECONA AG in Berlin. Says Elserino Piol, president of Italy's Pino Venture Partners: "We've come to the end of the pioneer cycle." Venture capitalists are at the heart of that change. Before the markets turned south, such folks had a clear, highly lucrative exit route from almost any dotcom in which they invested: an initial public offering. Now, as they depend on alternative exit strategies such as trade sales in which a company is sold to an existing firm in the same industry the VCs are subjecting potential new investments to scrutiny reminiscent of a more sensible time. "We're going back to the Old Economy rules for investing," says Carlo Pirzio-Biroli, chief executive of Italy's CDB Web Tech. "We want strong entrepreneurs, a rational business model, strong marketing possibilities and defendable technologies."
While the VCs may not necessarily be investing less, the patterns of those investments have changed. According to Liz Barth, director of research at Deals In Europe Plus, a data service from Tornado-Insider.com, VCs invested $140 million more in software and technology companies in January than they did in the previous month but about $116 million less in Internet companies. When it comes to the firms still in their portfolios, VCs are demanding tighter cash management and better results. And when it's clear that one of their charges isn't likely to pull through, the backers are simply pulling the plug.