Sweden's Dot Com Deep Freeze
Ericsson's phones aren't the only falling stars in Stockholm. Just ask Sven-Christer Nilsson. The former Ericsson CEO, who was dismissed a year ago, promptly jumped into the frothy venture-capital scene, launching a fund called Startupfactory with financing from Japan's Softbank Corp. But in mid-October, Nilsson delivered some bad news. MsFreckles, a Swedish portal funded by Startupfactory, was dying for a cash injection--and Nilsson let it die.
It's a common tale in Sweden, as the onetime capital of Europe's Internet industry slides into a dot-com recession. Fallen this autumn are Boxman.com PLC, an online music store, and Dressmart, a clothing retailer; once-torrid Net consultancy Razorfish is laying off 200 workers. As investors discover a new taste for quick earnings, the shakeout is likely to extend far beyond Stockholm. That's healthy enough. The danger is that the investment chill will stifle a vital branch of Europe's startup culture: applications for the wireless Internet.
This could dull Europe's brightest hope for the Web economy. While Nokia Corp. and Ericsson lead the world in handsets and mobile networks, the Continent lags behind in finding ways to bring the wireless Web alive. This explains much of the flop in WAP, or wireless access protocol, the mobile data service that debuted in Europe last year. Both Nokia and Ericsson have promoted WAP. And Stockholm has exploded in WAP software startups, which have not ignited interest across Europe.
Call it WAPathy. Anne Glover, partner at Amadeus Capital Partners, which has $480 million to invest in Europe, still looks at wireless projects--"but not WAP." Says Per Mosseby, founder of Melody Interactive Solutions, a well-funded Swedish startup: "No one wants to take risks anymore."
The cold front is spreading. In France, Germany, and Britain, mobile entrepreneurs are cutting back on brand-building and pumping up sales instead. For now, venture funds are rushing to outfits with products and revenues. Fastrax, a Finnish maker of receivers for global positioning systems--key to the wireless Net--fended off a rush of VC firms, says Managing Director Kim Kaisti, before taking $1.1 million in mid-October from Startupfactory. "We're not a dot-com," Kaisti says, to explain his good fortune.
The freeze on WAP and dot-coms should thaw. Europe's VC firms have raised more than $10 billion this year--twice last year's figure. And when they start investing again, say insiders, they'll be able to buy bigger stakes and more control of WAP companies worth saving--at fire-sale prices. But Stockholm's WAP startups are in for a long winter.