THE DAY AHEAD: Despite IPO washouts, VCs keep reloading

With Internet stocks stuck in the worst slump of their young public lives, venture capitalist still keep pumping billions of dollars into what they hope will be the next Yahoo! or Amazon.com.

But as last week's disastrous week of Internet IPOs demonstrates, wishing doesn't always make it so.

1-800-Flowers.com (Nasdaq: FLWS) bombed in its debut last week. In fact, after pricing at $21 a share and losing ground in its first trading day, the stock closed at $17 a share Friday.

The lack of excitement for the online flower broker convinced competitor FTD.com Inc. (Proposed ticker: EFTD) to postpone its debut last week. Women.com (Proposed ticker: WOMN) and HotJobs.com (Proposed ticker: HOTJ) were among several companies that also decided to wait for a more auspicious IPO.

All this is certainly understandable when Internet stocks have plummeted around 40 percent across the board in the past 10 weeks.

Still, the VC cash seems to have no end.

Internet-related companies received investments of $3.81 billion, over half of the 661 venture capital transactions in the second quarter and 56 percent of the total dollars invested in the quarter, according to market researcher VentureOne.

The largest category within Internet investments, business services companies, secured $1.28 billion and over one-third of all venture capital transactions in the second quarter. The $2.18 billion invested in business services Internet companies during the first half of 1999 exceeded the total invested in this category in 1998.

Think about that.

When there are 30 to 50 Internet companies going public each month, how many of those were financed in the past year? So, next year's IPO wave should be even more potent.

"The Internet industry continues to mature as it has moved in a progression from infrastructure and content, to software and search engines, to e-commerce and now business services. Internet companies now have expanded into the business of the Internet: marketing, advertising, financial transactions and other business-to-business services," said Dave Witherow, VentureOne's CEO.

Yeah, but how many of them have annual sales of more than $10 million, much less profits?

Mark down these names because they were the companies that received the largest investments in the second quarter:

VIA Net.Works, a communications company, got $128 million. JuniorNet got $70 million. Onsite Access raked in $60 million and Pets.com Inc. secured $50 million in VC funding.

Whether these stocks are the next Amazon.com or the next Flowers.com remains to be seen. But if the past two months is any indicator, they're going to have bring more to the table than an Internet domain and a competent public relations firm.