Lurking in the background is what the Securities and Exchange Commission calls Section 144. This is a rule which governs and limits the sale of certain insider holdings when a company goes public.

What usually happens with new companies is that they're formed with limited dollars and much enthusiasm. If the concept works and the firm grows, it typically requires additional capital to increase marketing efforts and obtain more employees, facilities, and inventory. Family and friends can chip in, but eventually there comes a point where outside investors are sought, so-called venture capital firms.

Venture capitalists (VCs) pool money from various sources and routinely provide tens of millions of dollars for newly-emerging firms. That's great -- but there's a price. The VCs want a large chunk of the company, they want insiders to comply with Section 144, and they want something else: An additional assurance, called a "lockup", that the founders will not sell big bushels of stock the moment the company goes public, if it does.

The worry of the venture capitalists goes like this: If company founders, employees, and insiders unload big blocks of stock once a firm goes public, investors may lose confidence and company shares could decline in value. In fact, there's a useful site that actually tracks lock-up expiration dates and looks at related issues, IPOLockUp.com.

A typical lockup agreement lasts for 180 days after an IPO. Given that many high-tech firms have enjoyed big gains during their first few days on the market, it's possible for company founders to obtain considerably less for their shares than outside investors because after six months interest in a firm may slide. Even so, don't shed a tear for company insiders. While the sale price for their stock may be less than the highest levels, their cost per share may well be next to zero.

A related issue is that big money from VCs may be significantly less than publicized. For instance, the announcement of $80 million in financing may refer to the total possible VC commitment -- but a commitment which will only be reached if the site meets certain goals. The initial cash infusion, and perhaps the total cash investment, may be far less than $80 million.

Now imagine that you're the owner of a prospective Internet IPO. You have a site and a concept. Investors have already given the firm enough seed money to bail out a small member or the UN.

Sure you spend $19 for every dollar you take in, but you're adding eyeballs every day and that's what the business plan from two years ago emphasized.

But now the world has changed. Eyeballs are out and profits are in. Unless you can operate on a break-even basis the site cannot continue because there are no longer VCs willing to put up additional money.

And it gets worse. If you have an IPO at whatever price, there is now only a short timeframe in which to show profits or lose investor interest. Alternatively, if there is no IPO, then the company may be sold or merged at firesale prices with another firm. The VCs, of course, will get most or all of the firm's value from the transaction.

People inside the company know what's going on and understand that the prospective value of their stock options is melting away each day. Important hires who were once hailed with grand news releases now quietly slip out the back door to join other companies.

The result of new online expectations is that several trends are now emerging.

*Many sites will likely disappear into the electronic ether. The situation is so obvious that online busts are now followed on such sites as DotComFailures.com, StartUpFailures.com, and the Dot-Com Flop Tracker.

*The changing online landscape means funding will be harder to get, but not impossible. There's a huge demand for the next good idea that makes economic sense.

*Some sites now online -- and some sites to be developed -- will succeed. How? The winners will provide clear benefits associated with any thriving business, advantages for users such as speed, efficiency, verifiable savings for consumers, and additional business for brokers and lenders.

*Some good businesses, clever ideas, and decent people will fail because marketplace expectations have changed underneath them. And that's a shame.

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Question Of The Week

Q My credit card company wants to raise my interest rate because I had a late payment -- with another creditor. What should I do?

A Look at your balance. Can you pay it off from savings? If yes, do you have savings left for emergencies and other purposes?

Alternatively, consider other cards. Some have programs which allow you to transfer debt -- but ask about rates today, rates in the future, and transfer fees.

It's sometimes suggested that borrower's get a home equity loan to pay off credit card debt because then the interest is tax deductible. However, the goal should be to reduce debt not just move it. Getting a home equity loan and continuing to add debt may ultimately place your home at risk.

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