[1]The TROUBLE with TECH: Web Startups Rethink IPOs.

So much for irrational e-xuberance.

If there were any lingering doubts that Internet commerce companies are no longer the darlings of Wall Street, last week's technology tumult should have erased them. And that doesn't bode well for local Internet companies currently seeking to go public.

Several Los Angeles Internet companies that have filed for initial public offerings, as well as dozens of others ramping up to do so, are now reasessing their plans due to the recent tech market turmoil.

"There are certainly concerns, and it makes you think about the exit strategy if you are thinking about going public tomorrow," said David Cremin of Zone. Ventures, the Los Angeles arm of Silicon Valley's Draper Fisher Jurvetson.

"We have a few companies that are close to tiling for an IP0, and if the market continues to have such a negative sentiment, it may make sense to hold off a little bit," added Tony Hung of Dynafund Ventures.

The push to invest in Internet companies is far from over -- for one thing, venture capitalists, have, raised so, much money for their funds that it virtually ensures that the spigot will remain open. And, instead of being disturbed by the beating tech stocks have taken, many venture capitalists and investment bankers maintain that the shakeout will actually be beneficial, because the funding will now be more focused on the truly deserving companies rather than being dispersed to so many ultra-speculative startups.

But one type of company, no matter how well positioned, will have trouble securing funding: business-to-consumer e-companies. There are too many of them with similar business models chasing the same Internet "space" (niche), and the ardor has cooled. With valuations of publicly traded Internet companies coming down, private funding valuations are sure to decrease accordingly.

"B-to-C is basically dead," said Rohit Shukla, president of the Los Angeles Regional Technology Alliance. "You're not going to be attractive enough unless you're absolutely a killer that can ramp up really fast and flay anyone else in your space."

Internet companies now seeking to go public, especially consumer-based ones, "are not likely to get any kind of sympathy from local investors or investment banks," he added. "It's bad news for those in the pipeline who have spent vast sums of money getting to this point."

The most prominent of the companies in the IPO pipeline include pet supplier PETsMART.com of Pasadena, baby goods company RightStart.com in Westlake Village and sports site Broadband Sports Inc. in Santa Monica, among others. Spokespersons from the companies declined to comment, citing "quiet period" restrictions surrounding their offerings, other than to confirm that the offerings are proceeding.

"We're still planning our IPO," said PETsMART marketing director Mark Siegel.

But to anyone paying attention, the market's reception for ARTISTDirect Inc. can't be reassuring. The Encino-based online music company went public on March 28 at $12 a share. On April 6, it closed at $6.31.

A spokeswoman at the company declined to comment, also citing "quiet period" restrictions that last until 25 days after a company goes public. But things clearly aren't turning out as ARTISTDirect had planned.

"I'd hate to be going public right now, because even with a good story you could go out at $15 (per share) and two months later be at $7," said Michael Dubelko, founder and CEO of Hollywood's Express.com, which operates a music, video and game e-commerce site. The company, called DVD Express before a merger in January, late last year indefinitely postponed its planned $57 million IPO.

"It's not a very good time to be an e-tailer right now," he said.

E-commerce was supposed to present an immediate financial challenge to traditional "offline" brick-and-mortar companies, in part because they have low overhead and can tap into the ever-growing community of online shoppers.

But these companies have had to spend enormous amounts of money to attract and retain customers, making profit little more than a future promise. At the same time, brick-and-mortar companies used the proven technology of their Internet competitors to establish their own online presence, thereby leveraging their' already established brand names.

"The Internet model for retail was supposed to be lower overhead, reaching more people, with more effect -- and the opposite happened," Dubelko said.

Having raised more than $60 million in venture funding, including $12 million in January, Express.com can soldier on for some time, and is likely to seek additional private funding before refiling for an IPO.

But convincing investment bankers that an IPO would be a worthwhile bet could be a tough sell for Express.com and other such companies, especially given the sliding fortunes of online music retailer CDnow Inc. The Pennsylvania-based company saw its share price plunge from a high of $23 to as low as $3.41 two weeks ago in the wake of a report from its auditors expressing "substantial doubt" about its ability to continue operations due to lack of cash.

Dubelko points out that his company has a much broader focus than CDnow and, in contrast, owns its own distribution network. But he acknowledged that investors may not necessarily make such distinctions.

Making a compelling case that a given company sells pet supplies or cars over the Web better than another one has become harder.

That could hurt eStyle Inc., an L.A.-based online seller of products for women and parents. It hasn't filed an IPO yet, but according to published reports, it is seeking underwriters. Given the current conditions, that may be a long, frustrating hunt.

"I like the company and the management," Shukla said, but "it's not going to be easy."

The company declined to comment on its plans. But Cremin, whose Zone Ventures has invested heavily in eStyle, professed unconcern while at the same time sounding as if an IPO is by no means imminent.

"EStyle is a great company that will create value," Cremin said. "We're not worried about it, whether it goes public next month or six months from now."

EStyle announced in February that it had raised $45 million in venture capital in its latest financing round from such luminaries as Goldman Sachs & Co. and Paul Allen's Vulcan Ventures, so it isn't going away anytime soon.

But it may be more watchful of its spending. Up until now, Internet companies have been notorious for burning through money at an astounding rate, confident in the future because a public offering could occur as little as 18 months from the day of incorporation. If the recent market turmoil results in a significant delay in a company's "liquidity event," the company could spend itself right out of business.

"Some of these companies are going to run out of money, the way they've been spending," said Sandy Climan, managing director of Entertainment Media Ventures. "But for some, they didn't have sustainable business models anyway."

That's one of the reasons venture capitalists are viewing the turmoil with such equanimity.

The nature of the venture world is hit and miss, so one company's failure won't have much impact on a fund's overall portfolio.

Venture capitalists also invest at such an early stage that the rewards from one success can far exceed the costs of multiple failures.

Besides, those millions that venture capitalists have raised must be put to work somewhere, so plenty more entrepreneurs will likely get their Internet ideas off the ground in the months ahead. Meanwhile, more-established companies may need to rely on more rounds of venture funding than they had originally anticipated, and give up fatter equity stakes than before, while eschewing the public markets until Wall Street sentiment once again turns positive.

"There's still a ton of capital out there that needs to be invested," said Jon Funk, head of Media Technology Ventures. "What's going to be different is that companies that would have gone (public) at high valuations, will now be funded from the private market at lower valuations. Some companies will take longer to go public, which is probably a good thing."

"Are some of these companies going to have a heck of a time raising money?" asked Climan. "Absolutely. But there is still too much money chasing too few deals."