By Elizabeth Rigby

Atlas's internet portfolio is like an online shopping mall. From feather lampshades to foot balm, it has got just about every business-to-consumer angle covered. Unfortunately it is missing the e-commerce models deemed most likely to make it online - the auctioneers and the co-buyers. Christopher Spray, senior partner at Atlas, is philosophical about it: "You can't pick the winners all the time".

Given the current market climate, it is unsurprising that Mr Spray is keen to downplay his company's internet portfolio. "We don't view ourselves as an internet venture capitalist firm per se, we view ourselves as venture capitalist firm focusing on emerging markets, business-to-consumer (B2C) is one and business-to-business (B2B) is another. But just as important, probably more important are internet services and infrastructure and software."

On the face of it, Atlas, whose portfolio is divided between internet, health and communications, has minimal e-commerce exposure. Ten per cent of last year's $400m (E418.9m) fund was invested in B2C ventures with a further 5 per cent going to B2B start-ups.

But as other venture capital funds, such as 3i, fill their internet portfolios with broadband and wireless start-ups, Atlas has focused on B2C and B2B models. Of the internet investments made last year 60 per cent went to e-commerce, with the remaining going to start-ups in the internet services and infrastructure space.

And while Mr Spray says the 1999 fund has brought returns of a little more than 100 per cent overall, he will not be drawn on the internet portfolio's returns. "Most companies in that group are still private...so it is hard to tell."

"The performance on this part historically is stellar, the question is what will it be like going forward given that this sector is out of favour and the answer is I don't know". He directs my attention to Atlas's biotech portfolio that includes Actelion, a Swiss-based bio-pharmaceutical company which went public in April. "What am I trying to convey is that within this market where valuations on B2C and B2B are down over 80 per cent, there are other sectors which are performing well."

Atlas, which closed a $750m fund in February, plans to cut back B2B and B2C investments to between 40 and 50 per cent, and put more money into infrastructure start-ups. Communications, mobile commerce, broadband and optical networking, are the next hotspots, says Mr Spray.

Some of his continental colleagues have already moved into such spaces. Alexander Bruehl, joint managing director of Atlas' Munich office, has invested in few of the 1,000 or so B2C business propositions he received last year. "We just didn't feel comfortable that the consumer economy would quickly jump upon all the e-commerce opportunities which came out of the ground like mushrooms". German consumers are poles apart from bulk-buying Americans and business-to-consumer models that work in the US might not be so easily shipped across to Europe, according to Mr Bruehl.

Although he is wary of US e-commerce models, he has drawn on the Boston office's example of working with academic institutions - such as MIT and Stanford - and has forged links with European academics to add some of the sharpest new technologies into Atlas's portfolio. Systemonic, the spin-off start-up between Atlas and Dresden University, is developing chips to enable wireless broadband communication.

E-business infrastructure is another area high on Atlas's "things to invest in" list. Mr Spray and Mr Bruehl are eager to plough funds into start-ups that are building the virtual bricks to enable old economy companies to go online. It has already had numerous US successes in the infrastructure space, including OnDisplay, a US B2B software developer, which was one of 1999's ten most successful initial public offerings on the Nasdaq and Firefly, an internet privacy software company, which it sold to Microsoft in 1998.

Back in Europe, Atlas invested $10m in Unipower, a start-up that builds software for home shopping sites. "Atlas bought in because the technology is pretty unique - it accelerates the speed consumers can transact over the web." says Hugo Patten, managing director. And the big companies are impressed, Tesco Direct, the world's largest transactional grocery site, uses Unipower software as does Unilever, Budgens and Kingfisher.

The shift to technology-focused ventures may make some of Atlas' content focused investees - such as HomePro.com, an online DIY outfit and Blackstar.com, an online video shop - nervous. "The days when a dotcom can emerge from nowhere to beat their dotbam rivals may be numbered. Increasingly the real e-commerce success stories will be the 'dot bams' - established bricks and mortar companies that are realising the potential of e-commerce and preparing to fight back," argues Vic Morris of Atlas' London office.

r Spray doubts whether Atlas will invest in many more B2C start-ups. "The only ones we would add are those that we missed the first time round and try to invest at a later stage." I have given his number to Letsbuyit.com who pulled its initial public offering, opting for a private placement instead.



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