High-profile web liquidations and fire sales might now be an established part of the new-media scene in the UK and Europe, but US web start-up companies are leading the way in an unusual area - failure.
According to a report published last week, conducted for US business magazine Barrons, US dotcoms are heading towards bankruptcy faster than their European counterparts. Around 30 per cent of the 273 US companies questioned are expected to run out of money by the end of the next quarter, as firms continue to spend while sales underperform. But European start-ups have significantly slowed their spending.
The US study predicted that the bankruptcy rate of US start-ups will continue to increase over the next 12 months. It found a seven per cent rise in US dotcom bankruptcy since the last quarter. A study conducted by PricewaterhouseCoopers found that European dotcoms are more cautious in spending their venture capital.
The PwC report showed that the average burn rate for European start-ups has fallen significantly since December. The average total burn time (the time taken to run out of money) is now 20 months in the UK.
US dotcoms are just better at going bust than their European rivals. Entering the race to be the next eBay is about taking a risk with a high chance of failure and a huge reward for the few success stories.
A PwC spokesman said that Europeans manage their cash "more wisely", but added that taking a big risk then trying to limit it by spending the money more slowly might increase the chances of failure. Think of European company parsimony as representing the long, slow death approach to internet investment.
Half of current internet market capitalisation in Europe has come from IPOs since the beginning of this year, meaning that European dotcoms still have money in the bank. In the US, money was raised at the beginning of last year, so companies are coming to the end of their cash. European venture capitalists benefit from five years of internet experience and are now making more informed investments.
More than 40 per cent of UK companies are not burning cash - they are breaking even or making a profit. ISPs have marginally increased their burn rates while all other sectors have reduced them, and b2b companies are tending to get through their cash piles more slowly than b2c.
Nick Rosen is a director of The Online Research Agency. email: nick@online-agency. com or tel: 0797 1543703.
Vital statistics.
This week The business culture in the US seems to encourage risk taking, while caution is the watchword in Europe.
.jpg)
.jpg)