Fallout Hits European Internet Markets

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LONDON -- The Collapse of the international Web apparel merchant has shaken up the European dot-com industry and is keeping a growing number of start-ups from going public. was started in January 1999 by three young Swedish entrepreneurs in London. It was launched in 18 countries last November and planned to open in 13 more this year. It had start-up capital of $135 million.

The money came from heavyweight investors such as Goldman Sachs, J.P. Morgan, Benetton and LMVH, a French luxury goods company. When called in the creditors, it had $500,000 left in the till and debts of $28 million.

Only Bernhard Arnoult, the LMVH boss, was willing to continue pumping money into the ambitious start-up that steamed through its funds with few controls and overspent on its technology platform.

Ironically, European sales were picking up in March and April -- the company's Web site never caught on in the United States -- when investors pulled the plug as technology markets around the world were plunging.

In Germany, six dot-coms planning initial public offerings pulled back in just one week last month. dropped out a day before it was slated to begin its "road show" prior to going onto Frankfurt's new market.

Handelsblatt, the German Wall Street Journal, quoted analysts as saying that's collapse "was a signal that the wave of e-commerce start-ups was cresting and separating wheat from chaff in so doing."

Enterprises that sell online to consumers "have massive problems finding fresh capital," and some e-commerce companies are in serious danger of collapse.

It isn't so much the large losses start-ups incur as it is investors' unwillingness to take risks involved in financing them, Handelsblatt said. It quoted analysts as expecting a wave of dot-com mergers.

"The wave has only just begun," said Johann-Wolfgang Posselt of Deutsche Ausgleichbank. Many lack competent IT experts to help out and will merge to acquire them, Posselt said.

Even companies that proceeded with their IPOs pulled back on issue price. Chello Broadband, Dutch-based United Pan-Europe Communications' Internet services provider, slashed its offering price in half to 4 billion euros, or $3.5 billion. Yes TV, a U.K. video company, delayed its IPO and cut the price.

Major European telecommunications companies like Deutsche Telekom, Vodafone of the United Kingdom and France Telecom saw shares drop almost 10 percent in the wake of's collapse.

A Jupiter analyst in Germany said investors took flight because had been "one of the best-funded Internet retailers around. The fact that high-profile investors pulled the plug is telling."

And the Financial Times editorialized that the collapse "highlighted some fundamental weaknesses, which may turn out to be common to many Internet start-ups.", meanwhile, was cut in two and the parts sold. Back-end technology went to Bright Station, a U.K. Web firm, for 250,000 pounds, or $400,000, the rest to, a U.S. Web firm, for an undisclosed sum.

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