A Comeback in the IPO Market

Recent activity has ended a drought of venture-backed initial public offerings, and some experts foresee a rebound to about 40 a year

By Steve Hamm and Spencer E. Ante

Entrepreneurs and venture capitalists took notice just before the Memorial Day weekend when two technology companies had their initial public offerings in a matter of 24 hours. OpenTable (OPEN), a Web site for making restaurant reservations, went public one day after SolarWinds (SWI), a networking software company. The activity ended a drought of venture-backed IPOs that began last August. "It signals that investors are looking for growth stories," says Robert R. Ackerman, managing partner of Allegis Capital, a venture firm.

Even before the two IPOs, Goldman Sachs (GS) organized an invite-only conference on May 12 in Silicon Valley, called "The Next Wave IPO Forum," in anticipation of an IPO rebound. Rather than organize multiple meetings around the country, Goldman Sachs invited dozens of venture capitalists and entrepreneurs to a gathering on Sand Hill Road so the bank could explain why it expects an upturn in public offerings later this year. Goldman said it sees 10 to 15 venture-backed companies that have already registered with the Securities & Exchange Commission and that could be ready to go public in fairly short order. One example: Medidata Solutions Worldwide, a provider of electronic data management software for the health-care industry. "It feels to us like the IPO market is opening up," says David B. Ludwig, a managing director of Goldman Sachs' technology, media, and telecom sector in the firm's Equity Capital Markets Group. "We expect to see an acceleration of filings in the next few months."

Not the Boom Days

No one is predicting a return to the boom-era days when more than 200 companies went public a year, but some financiers and bankers say the market could soon recover to the level of 40 or so venture-backed IPOs a year. To get there, market conditions must continue to improve, more high-quality companies need to file, and their stocks need to perform well after they go public. "Two IPOs don't make a trend but it's very hopeful," says Fred Wilson, managing partner with the venture capital firm Union Square Ventures. "I think we will see the end of the IPO drought for venture-backed companies within the next year, possibly by the end of this year."

If the stock market doesn't stabilize, many of the most promising companies can afford to sit on the sidelines. One tech company that had hoped to go public this year now doesn't see that happening until 2010. Melih Abdulhayoglu, chief executive of Comodo, a supplier of Web site and PC security technology, says the two recent IPOs "are a very encouraging early indicator. But we don't see it saying, 'Let's go.'" Other companies that have been mentioned by investment bankers as strong IPO candidates insist they're still years off. Facebook CEO Mark Zuckerberg said on May 26 that the company had no plans to sell shares to the public soon. Reid Hoffman, chairman of LinkedIn, the business-oriented social networking site, echoed the same sentiment. "We're focusing on how to create a massively big company," he says.

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