Jeff Graves recently got a $50 million haircut.

No, it wasn't from Jose Eber or any of the other L.A. uber-stylists. It was from tech investors, or more specifically, from tech investors' flight out of the Internet sector.

Graves' El Segundo-based Internet startup, iBenefits Inc., valued itself at $150 million before the tech-market plunge.

"The market corrected, and we found ourselves (valued) at $100 million. A 30 percent haircut," Graves says with a slight chuckle. "For about two weeks, it was a really black period in my life."

Graves can afford to chuckle. Since the March meltdown, investors have once again warmed up to iBenefits, which is about to close on a $40 million-plus second round of venture funding.

Not everyone has been so lucky, and the casualties are just beginning.

For many professional investors, the collapse of eParties and its subsequent acquisition by eToys Inc. is a harbinger of things to come. Despite eParties' substantial marketing scheme when it debuted only nine months ago, it couldn't find additional funding, so portions of its carcass were swallowed by eToys for a mere $1.6 million in stock.

The acquirees will mainly consist of roadkill along the Information Superhighway failed e-commerce and Internet content companies. These firms are finding the financial well has dried up, and are desperate to survive in one form or another. Most will either fail outright, or be swallowed up in what is expected to be a far-reaching "roll-up."

Roll-ups are consolidations of established industries comprised of many small, scattered businesses, like the plumbing industry. The term is now being used to describe deals in which defeated Internet startups are encouraged by their venture backers to be acquired, even at bargain-basement prices.

"Call it roll-up or whatever, what you're referring to is clearly going to happen," said Brad Jones, general partner at Redpoint Ventures, a prominent local venture capital firm. "Some are total bailouts, because without it the company would just collapse. The price paid for eParties was next to nothing."

In some sense, eParties was lucky. Not all floundering e-tailers are going to find a helping hand at any price. Other companies are still hashing out their survival prospects, and may not yet realize the time is nigh.

It's a new era of fear, greed and opportunity.

"It's all of the above," said Alan Barton, a partner in the venture and investment practice of the law firm Paul, Hastings, Janofsky & Walker LLP. "If you're a buyer, this is a tremendous opportunity if you're getting funded. If you're a seller, it depends on how realistic you are."


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