There is a new dinner party game doing the rounds which has the working title: 'What have internet incubators ever given us?' The winner is anyone who can name a company successfully (or even unsuccessfully) floated off from a UK incubator fund. Tough one isn't it?

There are only a handful of examples, despite the fact that, at a rough estimate, there are about 150 different internet incubator funds operating in London alone.

But the signs are that this number is not sustainable for much longer. The sector is in turmoil, dragged down by the collapse in value of internet stocks and a dramatic shift in market sentiment. The fact that incubators have so far failed to deliver more than a handful of internet firms to the market has made financial backers reluctant to commit further investment

Already we have seen eSouk cull its staff from 22 to seven with a view to channelling its £10 million-worth of funds into pure venture-capital investments, rather than incubation. Lutian, the Belfast-based incubator, has ceased operations while Softechnet, a fund that focused on the Indian start-up sector, has been gobbled up by NewMedia Spark, one of the UK's largest incubators. Sources suggest several more could be about to shut up shop.

Those funds that have gone public are also in the doldrums, and share prices have taken a hammering. Oxygen Holdings, which aims to invest in university start-ups, has seen its price collapse from 65p to 5p, while the value of NewMedia Spark has slid to little more than £60m, a third of what it was worth a few months ago. Some quoted funds even find themselves in the surreal position of having more cash in the bank than their current market values.

'It reflects fears that they can't invest the cash profitably,' said David Pannell, analyst with IT investment bank Durlacher.

One of the problems the sector seems to be suffering from is an abject lack of definition. An internet incubator is essentially an organisation that will help start-ups in the first six months of their lives. Often called accelerators because of the way they help speed a company's route to market, an incubator should have a well developed network of contacts that can help fledgling dotcom firms find everything from offices to personnel to equipment to, crucially, cash.

'You have to have a portfolio of partners so you can find cash quickly. It's become more difficult to find funding because market sentiment plays such an important part in the process,' said Chris Thomas, chief executive of Route II, a new incubator which is focusing on Ireland.

It is also becoming apparent that many of the so-called incubators have little in the way of in-house expertise and, equally, poor access to partner firms who can guide their charges in the right direction.

Andrew Parker, analyst with Forrester Research, noted in a report earlier this year: 'Few incubators offer full-service support. Neither a thin veneer of support laid over venture capital nor access to premises with basic business services adds up to effective incubation.'

They may call themselves incubators, but they actually bring little to the equation other than cash, a proposition already on offer from the myriad venture-capital firms swimming in the same pond. This raises questions about what will happen to these vehicles now that they are effectively cash shells.

'Some of these incubator funds have raised quite a bit of money,' said Ian Coleman, European head of value consulting at PricewaterhouseCoopers (PwC). I suspect we'll see some consolidation as they reverse into other companies who are looking for an easy way of raising finance.'

The giant Coleman works for represents a new threat to the incubators. Whereas the likes of PwC have been tardy in developing their own models for nurturing internet start-ups, they are now attacking the sector with abandon. Those smaller incubators, such as eSouk, which tried to build a panoply of expertise under one roof, have found it too expensive to compete with Andersen Consulting, Ernst and Young and PwC, all of which have set up their own accelerator funds, chiefly to prevent prized staff from leaving and setting up their own e-businesses.

How long will it be before some of the big venture-capital firms, and even conventional unit-trust companies, start to snap up small incubators, whose backers are now growing impatient, not to mention worried, about their investments' chances of delivering hatchlings to market successfully via initial public offerings (IPOs)?

'Although I wouldn't say there are too many incubator funds, I think there are too many with ill defined propositions,' Thomas said.

A lot of these tend to focus on what analysts charitably refer to as the 'frothier' end of the market. These are the funds that invested heavily in nurturing e-retailers (the business-to-consumer, or B2C, market), many of whom are now on their last legs. Parker noted: 'B2C incubators won't see big returns. Europe's e-commerce future lies in B2B (business-to-business) trade, which will outweigh B2C revenues sixfold through 2004.'

Nevertheless, there will be winners. Antfactory, one of the largest incubators operat ing in London, last week managed to raise a further $150m (£100m) for investment purposes, despite the downturn in market sentiment.

Perhaps this is proof that only the biggest incubators will be able to survive the impending shake-out. After all, given the collapse of the internet IPO market, the gestation period of dotcom firms is starting to stretch dramatically, as the markets become more discerning about online firms looking to go public.

Some difficult pregnancies lie ahead.