One in four UK internet companies could run out of cash within six months, according to a survey published today by PricewaterhouseCoopers (PwC).
The dotcom companies that survive will be those with a strong revenue stream, while the prospects for the rest are bleak, according to John Soden, a partner at PwC's Business Recovery Services unit.
PwC expects the vulnerability of many internet companies to act as a catalyst for consolidation in the dotcom sector over the next 12 months.
"Many of these companies have very little time left in which to start increasing revenue or to raise new cash, and there has been a recent correction in the equity markets, with investors becoming much more selective about which internet stocks they will back," said Soden.
He added that higher risk startups are often funded by venture capitalists and rarely have debt finance from banks, which restricts their options when faced with a cash flow shortfall and means that directors need to foresee future problems even earlier.
"The classic response by companies with short burn rates is either to hold on hoping somehow revenues will increase, or to embark on a panic reduction in expenditure. But cutting marketing spend can have a catastrophic effect on dotcoms," said Soden.
"Dotcom companies need to recognise what is happening and recognise if things are not going according to their business plan," he added. "Many won't be able to survive on their own and will have to merge with another dotcom or an old economy company."
The research, which was conducted by new media specialists Fletcher Advisory, examined the so-called burn rates - the length of time a company can continue to operate before needing to raise additional cash - of 28 internet companies listed on the London Stock Exchange and AIM.
Driven by these short burn rates, and the potential to generate efficiency savings and revenue enhancement, PwC forecasts that the UK internet sector will see a significant number of dotcom mergers over the next 12 months.
Half of the companies covered by the research saw their share price grow by an average of 840 per cent over the six months to mid-April 2000, despite the fact that they look set to run out of cash in an average of eight months.
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