Good News And Bad News On IPO Front

This morning my inbox contained the latest report from Renaissance Capital. It has some hopeful news about IPOs, but not necessarily for Silicon Valley.

First, the good news: “After an uptick in filing activity, there are 67 companies in the active IPO pipeline, up from 29 in March 2009.”

As far as Silicon Valley is concerned, that’s about as far as the good news goes. Now, here’s the bad news.

According to Renaissance:

“Today, the tech, healthcare and retail growth stories that have driven past market revivals have been conspicuously absent from the latest wave of  IPO hopefuls.  This makes sense, given the historic consumer shut-down and the anti-business and investment rhetoric emanating from Washington.  In their place, there is a pool of unusual candidates shaped by an era of cheap credit and  the unprecedented mortgage crisis that followed.  At least for the near term, it appears that the IPO market will be dominated by opportunistic investment vehicles and businesses from the mid-decade buyout bubble.”

Translation: The IPO market is slowly rising from the muck. But for the moment, tech is not leading the way. In fact, according to Renaissance: “Venture-backed names have dwindled to less than 10% of the active pipeline.”

Instead, the mini-surge is being led by private equity firms trying to unload all those firms they bought out a few years ago. Oh, and real estate trusts are ahead of tech, too.

Whither venture-backed companies? Renaissance:

“After producing an average of 70 IPOs a year from 2004-2007, the venture capital community was relatively barren of IPO activity in 2008 and 2009.  Year-to-date, the VC community has completed four IPOs including healthcare IT firm Medidata Solutions (MDSO), network management software maker SolarWinds (SWI), restaurant reservation services provider OpenTable (OPEN) and remote connectivity software provider LogMeIn (LOGM).  While performance of these deals has been strong for the most part, averaging a 25% return, their size and profitability levels hardly fit the mold of a  typical small, venture-backed IPO.”

Currently, there are seven venture-backed companies in the IPO pipeline. Could there be more? Renaissance gives a round up of likely suspects:

“Besides the social networking giants Facebook, Twitter and LinkedIn, there have been several other rumored IPO candidates from the VC community as the market began to recover in early March.  Near-term, we expect the majority of new venture-backed IPO filings to come from the technology and alternative energy sectors.  Potential IPO prospects from each of these industries include online games company Zynga, ethernet network equipment provider Force10 and property & casualty software maker Guidewire in the technology sector, and smart grid company Silver Spring, solar panel maker Solyndra and electric car manufacturer Tesla Motors in alternative energy.”

Read the full report here.


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