Hunting For The Next Amazon

Investors search for a big winner among Europe's Net startups

It was a small item buried in Italy's business pages in mid-January. But when Italian investors learned Class Editori, a Milan publisher, was moving into online brokerage, they bid up the shares by 50% in two trading sessions. Days later, when the publisher announced plans to team up with a local bank to open a Web site, the rush turned into an Internet stampede all'Americana. By Jan. 26, the stock had soared another 180%, giving Class a market value of $900 million--or nine times 1998 sales. Outrageous? "It seems modest compared with the crazy multiples we're seeing in the U.S.," says Massimiliano Guttadauro, media analyst at Milan brokerage Albertini Sim.

Is the dizzying Internet investor party moving to Europe? Certain signs are popping up. Britain's Dixons Group, a lackluster electronics retailer, has seen its stock soar 70% since it began giving out free Internet access in September. It now boasts nearly a million online customers. On Jan. 24, mighty Deutsche Bank joined the trend, announcing a big online investing venture. Across the Continent, Web surfing is growing at a 50% annual clip, International Data Corp. says. Meanwhile, U.S. venture capitalists are scouring Europe for investments. Says Risto Siilasmaa, president of Data Fellows, a Web software company in Helsinki: "There's almost too much venture capital and not enough companies to absorb it."

No doubt, Europe is off on a Web adventure. But this Continental sequel is likely to be different from the American original. For starters, the Europeans aren't on their own. Such U.S. Net titans as America Online,, and Yahoo! are already throwing their weight around Europe. AOL has teamed up with German publishing giant Bertelsmann in a 50-50 deal.

As a result, European startups are scurrying toward niches. Some, such as France's Galeries de Versailles, sell luxury perfumes and $500 pens online. Others create software to cleanse the Web of viruses. As investors tour the Continent, in person or online, the question they face is how fast these niche players can grow--and whether any have what it takes to go global.

Candidates for the big time abound. France's Infovista, for example, is a leading producer of software that measures Web use--a crucial technology for the legions of portals sprouting around the world. Germany's Intershop, a European leader in E-commerce software, had 1998 sales of $20.6 million and says they will at least double this year. Intershop is already quoted on Germany's small-cap Neuer Markt, and others are following suit. Philippe Guglielmetti, president of Integra, a Paris company that designs and operates corporate Web pages, is preparing a $35 million initial public offering on the Nouveau Marche for May. "Five years ago, companies like us had no choice but to shoot for NASDAQ," he says. "Now, we can raise money here and use it to buy companies in England and Germany."

Still, Europe lacks the launch pads of Silicon Valley. Plenty of venture capitalists are on the prowl for established European E-companies with credible business plans. But to reach that stage, European entrepreneurs need seed money--$20,000 to $100,000, often used simply to rent an office. The demand for cash is so great that rank startups are appealing to big-time venture capitalists before they're ready. "We get ideas written down on scraps of paper," says Thomas Hoeg, 32, founder and managing director of Arts Alliance, a London-based venture-capital company focusing on Internet startups.

EARLY BATTLES. All the same, loads of entrepreneurs are finding room for growth in Europe's cultural niches. Jose Miguel Herrero, a former computer consultant in Madrid, started up Interactive Factory three years ago, when the Internet was barely known in Spain. Now, his system of Spanish city Web sites gets 200,000 visitors a month. His goal: to go public and spread into the Americas, reaching a market of 400 million Spanish speakers. En route, though, he's likely to collide with Microsoft Corp. and AOL, which both run city sites in the U.S.--and are eyeing Europe and Latin America, too.

Before long, Interactive Factory, like many European sites, will probably attract large suitors. Already, the Net giants are on a European feeding frenzy. An early battlefield has been bookselling, where privately owned Bertelsmann and pioneer are buying up small fry and staking out turf in Europe's multilingual market. Meanwhile, regional portals, such as Spain's Ole, patch together alliances with others in Germany, France, and Italy to take on the American behemoths.

But while Americans have the lead and the clout, the Internet is a project under construction, where one bold new idea could launch a European star. "It will probably be something no one has dreamed of yet," says James Richardson, Cisco Systems' president for Europe. From London to Munich, scores of Internet entrepreneurs are hoping their invention will be the one to score.

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