The honeymoon between investors and high-growth technology and internet stocks is over.

Welcome to the real world.

Following the volatility in stock markets over the past few weeks, investors are becoming more cautious about new issues coming to the market, newly created companies are becoming less confident about their ability to float, and banks which underwrite the issues are becoming more stringent, demanding more proof that a company's model is working.

"It would be wrong to say that investors have lost appetite for internet-related issues, but they have certainly become more selective. Nobody expects the repeat of the frenzy we saw three months ago when everything with dotcom at the end could be sold," says one banker.

The disappointing performance of Lastminute.com and World Online, the shares in which fell below issue prices, had a particularly sobering effect on investors. "Lastminute.com would not have been able to come to the market in the present environment," a US banker said.
Despite many brave faces, the sell-off in the market had a significant impact on the new issues market.

Several companies which were planning to list their shares had to postpone their offerings. Yes Television, the UK video on demand company, had to postpone its offering due to the market uncertainty. It appeared to be back on track last week but people close to the deal said it was likely to cut its offer price by about 25 per cent, valuing the company at £600m as opposed to £800m.
But bankers say many more companies which did not make public announcements about their plans to list had to delay their shares.

In France, for example, only two IPOs were officially postponed, according to Paris Bourse, but bankers estimate at least half a dozen deals not announced yet were likely to be delayed.
The two postponements were by SQLI, an internet publisher, and Electronics Line, an Israeli developer of alarm systems. Both were due to float in coming weeks on the Nouveau Marché, Paris Bourse's market for fast growing companies.

"It is normal for companies to review their plans when volatility reaches the levels we have been seeing," said an investment banker at a foreign bank active in Paris.
"The problem is not so much whether they come to the market when the Nasdaq [index] is at one level or 20 per cent above. It is more a question of whether we can price an issue while the Nasdaq is moving up or down 20 per cent."

Several secondary offerings are also thought to have been put on hold. They include recently floated shares such as Wavecom, the telecommunications company that is also listed on Nasdaq. Wavecom had announced earlier this month that it intended to raise more than E150m in a secondary offering of shares.

Fi System, an internet consultancy, confirmed recently it intended to put on hold a planned capital increase. "We will proceed with our capital increase when market conditions will be favourable," said Thierry Thevenet, Fi System's chief executive.

Bankers said other companies, mostly those floated in the past 12 months, had been considering secondary offerings. One banker said these companies were likely to "wait two or three weeks to see what happens" in the markets.

The turbulence, however, only seemed to have affected technology-related deals.
Euler, the world's largest credit insurer, said its IPO this week, which could value the group at up to E2bn, was "proceeding on schedule". The issue is due to be priced on Thursday.
Bankers say that large, solid companies such as T-Online, the Deutsche Telecom internet business, for example can weather the storm. T-Online offered its shares at the bottom end of the price range, but the shares have traded up since.

But the companies which wanted to raise money early in their life before proving that their models are sustainable are likely to be the main victims.
"The course of the market is changing and companies which were trying to float early models, are getting less confident," one banker in London says. "Investors are no longer willing to pay for the models which have not been tested."
This means banks which are advising the companies are becoming more prudent. "Nobody expects internet companies to show revenues or profits, but we need to see more data showing how many people are transacting with those companies, how many of them are repeat users," one bankers says.
"In the past, we were more willing to take a company's word for it but now we would like to see at least a couple of quarters of data before offering the stock to investors."
Many investors could say this is not before time.

Source: Arkady Ostrovsky and Samer Iskander, NYT,  April 23 2000