Internet incubators succumb to recession

Internet incubators' chances of beating the recession have been dashed, with the news that two high-profile UK companies are slashing staff and costs.

London-based Brainspark has laid off 40 per cent of its employees to reduce overheads, blaming the depressed investment climate.

"In the last two quarters of last year we experienced ever-decreasing levels of investment activity among the venture capital community in our sector," said chief executive Stewart Dodd.

The company announced an operating loss of £14.2m, despite raising £27m during its full financial year.

Its share price dropped 12 per cent to 25p after the announcement, well below its April 2000 high of 132.5p.

Brainspark also plans to shave £300,000 from its monthly operational costs of £500,000 by charging its startup project companies rent for using its premises.

UK investment group Durlacher also reported a loss of £13.9m for the first six months of its 2001 financial year. The company has seen its market capitalisation fall from nearly a billion pounds to £69m in less than a year, and has written off £13m from the value of its portfolio. It has also admitted that fewer than 30 per cent of the 25 companies it backs will ever go public.

The concept of internet incubators arrived in Europe two years ago. Offering business development and technical services to web newcomers in exchange for equity in the fledgling companies, they had startups flocking to their doors.

As the dotcom squeeze took hold, however, internet incubators struggled to get enough money from new firms. They switched focus to teaming up with the ebusiness divisions of established companies.

In July, Brainspark linked with Andersen Consulting (now Accenture), while Cable & Wireless invested £20m in incubator GorillaPark, and Lloyds TSB partnered with Antfactory. Now the so-called 'dot corp' strategy seems to have run out of steam.

"Established companies have their own established channels, and if they want support for dotcom ventures, they are more likely to turn to their business support rather than to specialist service providers," says analyst Andrew Parker of Forrester Research.

Brainspark is sticking to its original plan, however. "We still believe the business model is sound. The shareholders don't want us change it," a spokesman told Computing.

Also published in Computing