| NEW Internet companies are facing
a funding crisis following the collapse of boo.com, the failed Internet retailer, as financiers rush
to renegotiate terms with hi-tech start-ups.
Martin Bodenham, chief executive of Ernst and Young's Internet
incubator, the accountancy firm's hi-tech start-up arm, said yesterday
that more than 50 per cent of deals already negotiated between financiers
and new Internet companies were being reassessed in the wake of boo.com's
failure .
He added that some 25 per cent of deals had been shelved while the
remaining 25 per cent were expected to emerge unscathed.
Mr Bodenham said: "Many financiers are demanding much higher stakes in
start-up companies in return for capital investments or, as in our case,
in return for services. Exit strategies are being renegotiated wholesale."
The decline of the Nasdaq stock market, which has fallen more than 20
per cent in the past two months, and the failure of high-profile Internet
retailers have forced financiers to rethink strategies.
Nick Teunon, finance director for e-souk.com, an Internet incubator,
said: "We are not reassessing the fundamentals of many of the businesses
we deal with but we are rethinking the price at which we go in and the
exit strategy."
Internet incubators invest in new companies in return for an equity
stake. Mr Teunon said that a £300,000 investment, which would have
commanded a 30 per cent stake as a return at the start of the year, would
now command a 50 per cent stake.
The market has become so tight that many incubators and other venture
capital vehicles are choosing to reduce risk by investing in each other
rather than in the individual companies they are designed to help.
JellyWorks, the listed incubator, has invested in several other
incubators, including Antfactory.com.
Boo.com collapsed into receivership yesterday and admitted it had spent
almost every cent of the $135 million (£90 million) raised last year from
shareholders, which included Bernard Arnault, the luxury goods
entrepreneur, the Benetton family and JP Morgan, the US investment bank.
The website, set up to sell designer clothes over the Internet, has
been plagued by overspending, mismanagement and technical problems. Its
failure was seen by many in the Internet industry as inevitable.
Mick McLoughlin, KPMG partner and joint provisional liquidator of
boo.com, said last night there was still a chance of saving the business.
KPMG had received almost 30 expressions of interest, particularly in the
company's back-office logistics operations.
Mr McLoughlin said he hoped to sell the business, which owes creditors
about £25 million, by early next week. It would be sold "within days
rather than weeks".
"We have already had an incredible amount of interest," he said.
| 
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