Will web 2.0 give Europe’s startups a second chance?

It’s feeling like 1999 again in Europe. Hopeful young entrepreneurs are deserting consulting jobs to start Internet companies with funny-sounding names. VCs are initiating bidding wars for companies that appear to shoot out of nowhere. Could it be the “next bubble?” And will the few good companies move to the United States, denying Europe a technology success story once again?

Not if Europe’s next-generation Internet entrepreneurs have their way. A group of seasoned entrepreneurs—many who earned their stripes before the dot-com crash—are launching Web 2.0 companies. But instead of throwing lavish parties and “upping the burn rate,” these CEOs brag about organic growth and viral marketing. Many keep their costs down by making use of user-generated content and open-source software. Startup talent is tapped wherever they find it, in a kind of distributed employment model.

What’s also different this time around: a number are already making money, and have gotten there without venture financing. “When we could have used the funds, no one wanted to help,” says Lorenz Bogaert, CEO of Incrowd Media, a social networking company based in Aalst, Belgium, that says it is profitable. “Now we just say ?No’ to VC.”

But VCs don’t want to be left out in the cold, especially since the spectacular sale of Skype to eBay in September 2005 in a deal valued at $4.1 billion. After a long dry spell, they are once again starting to fund consumer Internet companies in Europe. The numbers aren’t expected to reach anywhere near 2000 funding levels, when private equity investors poured more than $11 billion into 1,566 European Internet-related ventures, according to Thomson Financial. Last year, only 455 European Internet companies received funding of approximately $1.4 billion, and this year’s funding pace doesn’t appear to have quickened: through the first half of 2006, VCs made 57 investments totalling $273 million, according to Thomson.

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