By Ari Levy and Elizabeth Hester, Bloomberg
San Francisco: Seven years after the Internet bubble burst, investors say it’s time to recoup their Silicon Valley losses.
Technology firms backed by venture capitalists raised $701 million in seven initial public offerings last quarter, equaling the third period of 2004 as the busiest since 2000, according to Dow Jones VentureOne, which does research on the industry. The IPOs came after venture capitalists poured $13.8 billion into US technology companies last year, the most since 2001.
Demand for faster Internet speeds, web content and wireless connections is driving the rebound in computer-related industries. Technology companies going public now have more realistic earnings prospects and must hew to tighter accounting standards than 10 years ago, investors say.
“It’s a very good time right now,” said Ron Pillar, head of technology investment banking at New York-based JPMorgan Chase & Co., the leading equity underwriter so far this year. He says the IPO market is the healthiest it’s been since 2000.
Another 13 technology companies plan initial offerings to raise as much as $2.3 billion, San Francisco-based VentureOne says.
Among the recent IPOs is Aruba Networks Inc., a Sunnyvale, California-based producer of wireless networking equipment. Its shares have risen 25 % since the company went public last month. BigBand Networks Inc., a Redwood City, California, maker of equipment for delivering online video, is up 32 %.
nvestors are more cautious, requiring companies to develop pre-IPO track records documented with transparent financial records, said venture capitalist Fred Wang, a general partner at Trinity Ventures in Menlo Park, California.
We’re believers,” Wang said. “When you see companies finally file, they are more mature on average than they might’ve been anytime in the last 10 years.”
The resurgence is helping venture capitalists including Meritech Capital Partners make up for busts such as Homestead.com Inc. Meritech backed Homestead, an Internet company designed to help people build websites. It withdrew its IPO in October 2000, five months after filing.
Meritech has had better success with its recent backing of BigBand and Riverbed Technology Inc., a San Francisco computer-networking company.
“It’s been a long time coming,” said Paul Madera, managing director at Meritech in Palo Alto, California. “It’s very different because you have real companies with interesting revenue and great margins.”
The euphoria may be short-lived. The US economy is slowing, and technology companies including Waterloo, Ontario-based Research In Motion Ltd., maker of the BlackBerry, and New York-based Internet job site Monster Worldwide Inc. said sales rose less than forecast in recent quarters.
Gross domestic product will grow 2.4 % this quarter, according to the average estimate of economists surveyed by Bloomberg, compared with 3.3 % all of last year.
“There are reasons to be cautious,” said Rob Enderle, president of the Enderle Group research firm in San Jose, California. “The economy is giving mixed messages right now.”
Companies planning IPOs include Sunnyvale, California- based optical-equiTempe, Arizona-based networking services provider Limelight Networks Inc., which sapment maker Infinera Corp., which plans to raise as much as $150 million, and may bring in as much as $201 million.
Riverbed ignited the IPO flurry in September when it became the first computer-networking company to go public since 2001. Chief Executive Officer Jerry Kennelly said he expects sales of the San Francisco-based company to almost double this year to about $175 million.
Kennelly, who founded Riverbed in 2002, had champagne with employees after the stock jumped 57 % in its first day of trading. The party was brief and they returned to their desks, he said. Many of his workers lived through the dot-com bust and know that stock options can become worthless in a hurry, Kennelly said.
“Anyone who’s worked in technology had paper gains they never realized,” said Kennelly, who previously was chief financial officer of Inktomi Corp., a software maker bought by Yahoo! Inc. Riverbed shares have tripled since the company went public.
Acme Packet Inc. followed Riverbed with an IPO in October. The shares have since surged 44 %. Sales at the Burlington, Massachusetts-based company more than doubled last year on demand for equipment that helps Internet service providers handle voice communications.
“They were obviously catalysts for subsequent IPOs,” said Maha Ibrahim, a venture capitalist at Menlo Park, California-based Canaan Partners, which invested in Acme and has a 5.6 % stake in the company. “You’re seeing a lot more buzz and a lot more ideas coming out.”
Investors aren’t embracing the IPOs of unprofitable companies, as they did during the bubble. Shares of Kirkland, Washington-based Clearwire Corp., a wireless-Internet company founded by mobile-phone pioneer Craig McCaw, have fallen by 26 % since they started trading 8 March. The company’s net loss doubled last year to $284.2 million.
Shares of San Jose, California-based Veraz Networks Inc., a maker of telecommunications equipment that lost $13.9 million last year, have fallen 17 % since they started trading on 5 April.
The number of IPOs still pales compared with 1999, when 166 venture-backed technology companies went public. Some of them, such as eToys.com and MotherNature.com, were bankrupt by 2001.
Many of the biggest IPOs, including those of Amazon.com Inc. and Cisco Systems Inc., were handled by Frank Quattrone, the Credit Suisse Group investment banker who came to symbolize the bubble and its collapse. Technology stocks lost $6 trillion in market value from their peak to the low point.
“The buzz is not like it was in ’99 and 2000, that’s for sure,” said Kevin Landis, chief investment officer of San Jose, California-based Firsthand Capital Management, which manages $750 million and has a stake in AuthenTec Inc., a Melbourne, Florida-based biometric-device maker that filed to go public last month.
“The market is looking much more at IPO companies like any other company, which is the right way to look at them,” he said.