The blow up is outlined in "Latin America goes from calor to frio" by Karie Atkinson in Redherring. One institutional investor's take on the deteriorating financial outlook:

"Ever since the frenzy created around Latin American portals such as Starmedia Network and El Sitio going public [and the tanking of both companies' stocks since that time -- both are currently trading at about one-tenth of their 52-week highs], the Latin American market has blown up," says Andrew dePass, managing director of CVC Latin America, which manages Citibank's private equity investments in Latin America.

In the same article, Daniel Jinich of Newbridge Technology Ventures warns of the horizontal portal space, which he says is "overpopulated with companies such as New York-based Starmedia Network, Brazil's UOL, Miami Beach-based Yupi Internet, Spain's Terra Networks, Ft. Lauderdale-based AOL Latin America, and Argentina's El Sitio."

According to Mr. Jinich, consolidation seems almost inevitable with deep-pocketed giants such as Terra Networks, backed by the Internet division of Spanish phone giant Telefonica, and AOL Latin America, emerging as buyers in a buyer's market and big winners in Latin America.

The Self-Fulfilling Prophecy

Whether over heated exuberance or exaggerated despair is gripping the market, it seems to take on a life of its own, pushing a stock up or down, creating, in fact, a self-fulfilling prophecy.

Hot air can make the balloon rise, but what is to sustain it when it's aloft? Usually, earnings tend to keep the balloon aloft, but many of these companies, beside the space for earnings, have a big: NONE.

Investors can not even look back to a previous quarter, and say "Well, they made money before, they can do it again, once this ( hopefully temporary, problem) is out of the way." StarMedia's stock price has fallen to less than $10 this fall. It has burned through $104 million in cash and continues to lose money in staggering amounts. Since StarMedia is based on an ad revenue model, it is difficult to imagine how it could reduce sufficiently its huge marketing expenses, designed to attack an ever increasing number of eye balls to its portal.

Just to give some perspective on how far a stock can fall, once financial darling, QuePasa.com, has fallen fast and hard, and is now a penny stock. This is akin to being still alive but in a coma or vegetative state. Time will tell which.

The Future - Mining the Gold From A Market

The irony is that all the factors which propelled StarMedia and others into the Latin American Net market are still there. Opportunities continue to grow. But they will be mined by those who enter the market with the right strategic approach.

The deep pocketed giants can approach a market with the advantage of time on their side. They can sustain heavy losses while waiting for a market to mature. Microsoft and telco Telefonos de Mexico, launched T1msn, an ISP/ portal. Terra Networks of Spain, buoyed by its $12.5 billion acquisition of Lycos, will be marketing to Latin American markets including Argentina, Brazil and Chile. Both are a good bet to come out winners, odds which are increased if they can pick off some of their rivals, like StarMedia, by acquiring them.

Venture capitalists themselves have not given up on the Latin American market. "An upcoming report by Daniel Baranowski of Bain & Company. Mr. Baranowski projects that venture capital and private equity investments in Latin Internet companies will grow to between $2.5 billion and $3 billion this year, up from $645 million in 1999." But they will be targeting other segments and using different strategies, which avoid the ad revenue model. Some will invest in Internet infrastructure and enabling technologies, a good bet for first money in a market.

Circumstances also improve as the market matures. New investments will improve the infrastructure. Entrepreneurs who have fled to other countries are returning home. Local universities are emphasizing technology in order to be able to fill the pipeline for tech workers and support the new growth in technology.

In time, there will be success stories, although no one knows precisely when they will come. Even StarMedia itself could make a comeback, although it could well be as an acquired subsidiary of a stronger company. The StarMedia stock is now so low it has made it to the Buy lists of some stock analysts and it does have a 30% share of the Latin American Online advertising market.

Time will tell which companies will succeed. But any company can, if it shapes its strategy to persevere. Experience, in fact, does count and speed, sometimes, does kill.