US dot-coms burning cash faster than Europeans

NEWS Of the 273 companies surveyed by US financial publication Barron's, more than 30 per cent are expected to run out of money during the next quarter. This represents a seven per cent rise on the previous quarter. The study also predicts that this burn rate will continue to increase over the next 12 months. In comparison, a study published recently by PricewaterhouseCoopers (PwC) revealed European dot-coms are fairing far better. The study showed that the average burn rate for a European company has slowed down dramatically since last December and is unlikely to exceed sustainable levels over the next six months. Speaking to silicon.com, Hugh Brown, partner at PricewaterhouseCoopers, said: "The difference in burn rate between the US and Europe is a result of a combination of things. The US market is more competitive, therefore marketing and advertising expenditure are much higher than in Europe." Brown added: "The next six months will be interesting as investor confidence will grow and will make the European dot-com market more aggressive. "Volatility of the sector in Europe became inevitable with the collapse of well known B2Cs such as boo.com and Dressmart which made investors very cautious." Edward Klinger, founder of venture management company Primode, sees the escalating US burn rate as a result of technological developments. He said: "VCs are now looking to invest in wireless infrastructure, which is underdeveloped in the States, and are therefore reluctant to spend additional money on dot-coms." However, Jari Talvinen, investment director at European venture capital firm CapMan, sees the difference as a result of America's risk taking business culture. He said: "The American mentality accepts failure more easily than European culture does. VCs are more willing to invest large sums of money into something that can be quite risky. This can create an illusion of a market having more money whereas in reality there is no more capital available than the market conditions allow. This creates casualties."