Back to the real world
By : Roseanne Gerin
Venture capital (VC) firms are increasingly rejecting general and specialized Web sites and e-commerce projects, turning instead to other new-economy niche technologies, industry professionals said last week.
"It's a fashion-driven business, and the fashion comes from the United States," said Dariusz Augustyn, an independent Internet consultant and the former business development director of Polish operations at Red-Stars.com (http://www.red-stars.com), an incubator that provides funding and technological know-how to Internet and e-commerce start-ups. "First they (VCs) invested in non-profitable portals, now the fashion is coming back to basics investments in mobile commerce and telecommunications."
Since the Internet bubble burst last year, VC firms worldwide have been more cautious about investing in IT start-ups, carefully scrutinizing the management teams and business plans of the applications they receive.
With the recent failures of several cash-consuming portals, vortals and e-commerce start-ups in Poland, some of the country's 20-25 VC firms have switched their attention to other Internet-related areas. Many VC companies are now looking at firms offering software solutions, mobile-commerce services, Internet infrastructure projects and "enablers," or technologies for e-business applications projects that will provide quicker returns on investments within one or two years, analysts said.
In general, investing in business-to-consumer (B2C) and business-to business (B2B) e-commerce start-ups is somewhat outdated. Poland's few B2B e-commerce ventures are operated by old-economy companies such as metal suppliers and agricultural traders to facilitate business transactions with their partners, according to Jerzy Kalinowski, the president of VC firm i-start (http://www.i-start.pl). B2C e-commerce is still a long way off since Internet users here are not comfortable with using their credit cards online.
"E-commerce has so far proven really nothing," Augustyn said. "If it takes off in the U.S. next year, it means two years for us is a polite (timeframe), but I would say three years."
Robert Manz, a partner at the Warsaw office of international VC firm Enterprise Investors (EI) (http://www.ei.com.pl), said his company still reviews portal and e-commerce proposals, but that these "business plans haven't proven themselves" as profitable investments. Most portals and vortals depend on the sale of online ads to generate revenue, but this income is usually not enough to cover their high operating costs.
EI is looking more closely at business plans for companies dealing with Internet infrastructure, software solutions and mobile applications, which target corporate rather than retail clients, said Manz, who oversees the firm's telecom and Internet investments. These projects are "more likely to develop revenue in a shorter period of time at a lower cost," he said.
Tomasz Pietka, a senior investment manager at VC firm bmp Polska (http://www.bmp.pl), said software providers, telecommunications firms, content-generating services and online media are the most attractive subsectors of IT and Internet investments for his firm.
