MILAN -- When Michele Appendino and Fausto Boni told friends and family in 1997 that they were leaving McKinsey & Co. to start a Milan-based venture-capital firm called Net Partners, the reaction was disbelief.

After all, Italy is one of Europe's laggards when it comes to embracing the Internet, and the nation hasn't exactly been a crucible of entrepreneurship in recent years.

Still, Messrs. Appendino and Boni bet it was only a matter of time before the revolution that started on the West Coast of the U.S. reached even the slow-moving corners of Southern Europe.

So far, their gamble has paid off. With a modest 25 million euros ($21 million) to invest at the outset, the duo helped bankroll the launches of some of Europe's early Internet successes, such as SelfTrade (www.selftrade.com), the French online brokerage
firm, and QXL (www.qxl.com), the London-based auction company. Both went public before this year's spring meltdown of technology stocks began. The partners launched a second, 190 million euros, fund in the summer and are now sifting through 60 business plans a week, looking for new opportunities.

Companies like Net Partners illustrate just how pervasive venture capital has become since a slew of new private-equity companies have cropped up in Europe in the past several years. Those venture capitalists have been joined recently by old-line industrial concerns, from German electronics giant Siemens <http://interactive.wsj.com/inap-bin/bb?sym=G.SIE&page=15> AG to French car-parts maker Valeo <http://interactive.wsj.com/inap-bin/bb?sym=F.VAL&page=15> SA, which have launched their own investment funds. Add to that the U.S.-based venture-capital firms that have opened shop in Europe, and the Continent is suddenly awash in money.

"The amount of money that is floating around is huge," says Michele Pedercini, the chief financial officer at Direct.it (www.direct.it), an Italian online seller of computer hardware and software that received funding from Net Partners. "There is way more money than there are ideas out there."

The amount of private equity invested in Western Europe jumped 65% last year to $26.8 billion (32 billion euros), including funds for buyouts of existing companies, according to a joint survey by consultants PricewaterhouseCoopers and 3i Group PLC, the U.K. venture-capital company. The fastest-growing sector was investment in technology companies, up 84% to $8 billion.

Investment funds continue to raise money for European ventures despite this year's technology-stock swoon. In the first six months of this year, private-equity firms raised $22 billion, estimate 3i and PricewaterhouseCoopers, compared with $27 billion for all of 1999. About half of the total is aimed at early-stage and development capital for start-ups.

Tough Times

Net Partners is a good example of the venture-capital firms cropping up around Europe. For two years after its founding, the company was a two-man show. Mr. Appendino, formerly head of McKinsey & Co.'s multimedia practice, and Mr. Boni handled every aspect of the business, from fund raising to clerical tasks.

The duo found fund raising painfully difficult, such was the pessimism about Europe's entrepreneurial prospects three years ago. They contacted 300 potential investors in their quest for funds, and in the end, just 15 decided to invest. They encountered the greatest skepticism on the far side of the Atlantic.

"It was impossible to attract a corporate investor to commit a half a million euros in our fund," says Mr. Appendino. "They said, 'There are no opportunities in Europe.' "

Net Partners' first investment was in SelfTrade, which was launched in 1997 by Charles Beigbeder, a former London investment banker. Messrs. Appendino and Boni both worked full-time for two months to finalize the contract for an initial investment of 200,000 euros.

For a while it looked like SelfTrade would be stillborn. For nine months the brokerage firm was unable to line up a bank to be a custodian for customers' accounts, says Mr. Appendino. Without that, the company couldn't legally function. Mr. Appendino says the board met several times to mull whether to pull the plug or forge ahead.

In the end, they decided to push forward, and SelfTrade quickly blossomed, growing outside France to establish itself in the U.K., Italy and Spain. In March of this year it raised 140 million euros in a private placement and an initial public offering on Paris' Nouveau Marche. In September, SelfTrade agreed to merge with Germany's Direkt Anlage Bank <http://interactive.wsj.com/inap-bin/bb?sym=G.DAL&page=15> AG in a deal that valued the French company at about 900 million euros.

Emphasis on Management

The technology-stock swoon has brought new sobriety to venture-capital firms the world over, and Net Partners is no exception. Messrs. Appendino and Boni, along with the seven colleagues who have joined them over the past year, are taking an increasingly active role in the companies they invest in. This often involves recruiting experienced managers to bring more discipline to often freewheeling start-ups.

"We try to install a CEO early on so we don't have to do the nursery thing," says Mr. Boni. "It's important to have solid management in place from the very beginning."

A good example is Direct.it. At Net Partners' urging, the company in October hired as chief executive Enrico Ceccato, formerly chief operating officer of Autogrill Group, a global catering business. Mr. Ceccato says his role will be to bring some hard-nosed business know-how to Direct.it and help the company prepare for an eventual IPO. He is trying to focus the company on services that help teach Italy's established small and midsize companies how to take advantage of the new technologies Direct.it sells.

"The difficulty for these [start-up] companies is to focus and set priorities," said Mr. Ceccato. "They are enthusiastic and have a lot of funds in hand. But they try too many projects at one time. They have to dream less and make serious decisions."

Net Partners believes steps like bringing in experienced hands and demanding rigorous monthly financial reporting increase the companies' chances for success. But entrepreneurs often are headstrong individuals who have poured sweat and blood into their creations. Sometimes they view such help as nothing more than meddling.

To insulate themselves from the outside influence of venture capitalists, some entrepreneurs seek alternative sources of funding, particularly in the early going, when the fundamental strategy of the business is being formed. For seed money, they seek out sympathetic businesspeople with deep pockets, or make the rounds of friends and relatives, trying to scrape together enough money to get their ventures off the ground.

Some people feel venture capitalists "are vultures who are out to screw you," says Marco Pescarmona, a co-founder of an Italian online mortgage service, MutuiOnline (www.mutuionline.it),
which has received backing from Net Partners. Adds Patrick Turner, a professor at the Insead business school who specializes in entrepreneurship and has started and run several companies: "Venture capitalists aren't everyone's cup of tea. They often want a say in management and they dilute [the entrepreneur's] ownership in the company."

But such concerns haven't stemmed the flow of entrepreneurs trying to win venture capitalists' backing for their business ideas. In its first year, Net Partners saw about 600 business plans. This year the total will be about 3,000.

About one out of every 200 ideas gets Net Partner funding, figures Mr. Appendino. But sifting through all the business plans eats up about 50% of the company's management time. He has come up with a systematic way of quickly sifting through this blizzard of paper. Ideas that are too complex immediately hit the reject pile. So do ones focused on too narrow a market. Plans that lack a solid core of managers also bite the dust.

Net Partners has missed some potentially attractive opportunities because the company didn't act quickly enough, acknowledges Mr. Appendino. Now he hopes to be able to set up an initial meeting with promising candidates and have an initial decision on whether to pursue a deal as quickly as two weeks after a proposal hits his desk.

Narrowing the Focus

At the outset, Messrs. Appendino and Boni believed their base in Milan put no geographic limits on their investments. Indeed, they figured nearly a third of their money would be sunk into U.S. ventures; the second company they backed was Worldres, a California-based online travel concern.

Now the duo realizes that Net Partners' investments need much more hands-on
attention than they first anticipated. They have narrowed their focus to mainly Italy, France, Spain and the U.K. They expect to keep the numbers limited, too, investing their new funds in about 15 companies. That way they expect to have enough cash to participate fully in several rounds of financing and maintain their stakes in companies at about 30%. That is something Net Partners often couldn't do with its first stable of investments, simply because it lacked the resources.

All of this bodes well for Europeans bitten by the entrepreneurial bug. Indeed, the rapid development all over Europe of viable venture-capital companies is prompting some young professionals who left the continent in search of economic opportunity to bring their ideas and their dreams back home. That's the case with Mr. Pescarmona and his partner, Alessandro Fracassi, who both left consulting jobs in the U.S. to launch a mortgage company in their native land.

"The real revolution in Italy is the access to capital," says Mr. Fracassi. Venture capitalists "are here, and people like Marco and myself will be given an opportunity to start a company."

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