Taking the Plunge.

• Author: CHARTRAND, LLOYD

What You Need to Know About Working With Internet Startups

DOT-COM SUCCESS IS not just about huge venture-capital backed companies, but encompasses millions of startup enterprises, which are developing new infrastructure, "enabling" technologies, and changing the way we live our lives. These new-economy enterprises need CPAs to assist them not only with their compliance requirements, but with their corporate finance, planning and implementation activities. However, if you don't have corporate finance and valuation experience, don't attempt to practice in this area; rather, make a corporate financial consultant part of your outside adviser team. The new economy offers great opportunity for CPAs, but before taking the plunge, you need to understand the playing field.

NO MORE EASY MONEY

Know this: The days of easy money are gone. Prior to April 2000, venture capitalists and investment bankers drove the Internet economy. The rush to initial public offering (IPO) was simple: you get a good team together, fund a business model, have an IPO and shift the risk of your flawed business model onto the unsuspecting public investor. This greed-driven process made fortunes for those lucky enough to get out before the bubble burst.

Many thought the recent market correction would cull dot-coms with flawed business models and only companies with sound business models would survive. However, others believe this market correction is in fact a market crash--part of the natural evolutionary process of the Internet economy. Whatever theory you choose, the entire Internet sector has been painted with the same brush, and many Internet blue chip companies are getting slammed at the same time. Companies like AOL, Yahoo!, eBay and Amazon with sound business models and experienced management have seen their stock values plummet.

As a result, this market adjustment has had an adverse impact on capital markets and their appetite for funding Internet startups. Today, the bottom line is this: Unless your Internet startup falls into broadband, infrastructure, wireless, or optical networking plays, your ability to raise private equity or venture capital is negligible.

THE PLAYING FIELD

All is not lost, there is still opportunity to build a profitable Internet company now that the Internet economy has become more traditional. Knowing which Internet segments are currently in favor is key to a startup's success. The darlings of the business-to-consumer (B2C) segment have become the villains of the new economy. B2C companies such as FogDog.com, Pets.com and Furniture.com have either closed their doors, or are on the brink of closing.

On the other hand, traditional companies are "dot-coming" themselves and finding success. Doing well are those Internet technologies that create efficiencies, assist in bringing customers back to commerce sites, or develop psychographics. Unlike demographics that track information such as age, gender or income, psychographics focus on what interests people, their hobbies, personal...