Ending a 15-month drought — the longest in memory — a Silicon Valley-backed startup will make its debut on Wall Street today when OpenTable, an online restaurant reservation service, starts trading under the ticker symbol OPEN.
OpenTable, one analyst cautions, may be biting off more than it can chew, although investors’ appetite for its shares was stronger than expected.
But with stock markets showing signs of stability, the bullish snorts around initial public offerings are lifting hopes in Silicon Valley. The region’s unemployment has hit a record 11 percent, but an IPO revival could help get the technology industry back on track — and perhaps set the stage for an offering from Facebook or other high-profile startups.
“The IPO market is starting to open up,” said Kathy Smith, a principal with Renaissance Capital, a Connecticut research firm that tracks new offerings on Wall Street. “The market is open for business — but only for strong companies willing to offer attractive prices.”
IPOs are a keystone in the financial structure of the tech industry. Successful Wall Street debuts enrich VCs, entrepreneurs and employees who own stock, and indirectly enable venture firms to deliver big payoffs to investors such as pension funds, university endowments and other wealthy institutions.
Cause for alarm
But the recent paucity of IPOs has caused alarm for the venture industry, and has intensified a continuing shakeout among valley VC firms.
The benefits of a healthier IPO market should ripple through the tech economy. Investors will use returns from successful IPOs to provide financing for seed-stage and mid-stage companies. Other investors will flock to invest in the valley once they see big payoffs as tech firms go public.
University of San Francisco business Professor Mark Cannice said the activity could “allow the Silicon Valley entrepreneurial machine to shift into a higher gear in 2009 and 2010.”
OpenTable figures to be the seventh Wall Street IPO of 2009, and the fourth by a tech company. Among the previous six, two are now trading modestly below their offering price, and four are up strongly. ChangYou.com, a Chinese digital gaming company trading on the New York Stock Exchange, was up 90 percent, and Rosetta Stone, a language teaching firm, is up 39 percent, according to Renaissance data.
SolarWinds, an Austin-based firm that competes with Hewlett-Packard and some other valley firms that make enterprise networking management software, was the latest, raising $151.5 million Wednesday by offering more than 12.1 million shares priced at $12.50. At the end of the day, the price for each of the newly minted shares of SWI was at $14.69, up 17.5 percent.
San Francisco-based OpenTable, founded in 1998 during the dot-com heyday to provide online reservation services to restaurants, now claims 10,000 clients and upward-trending revenues despite the recession. And appearing to illustrate the continued appetite of investors for hot IPOs, those backing the company’s IPO substantially raised the expected price range for its offering, from $12 to $14 per share initially to $16 to $18 earlier this week. Late Wednesday it announced shares would be priced at $20, meaning the company will raise $60 million in its offering of 3 million shares to the public today and providing big returns to venture capital firms Benchmark, Impact Venture Partners and Integral Capital Partners.
A ‘one-trick pony’?
Not everyone was impressed. “I think it’s grossly overvalued,” said Scott Sweet, senior managing partner of IPOBoutique.com. The Florida-based analyst questioned the growth potential for the company. “Their product is a nice idea, but right now it’s very easy to make reservations in the best restaurants by phone. It’s a one-trick pony and those companies are dangerous. They’re no Google.”
OpenTable, through alliances with Facebook, Rearden Commerce and other companies, is counting on consumers to increasingly use smart-phone applications and social networks to make reservations. It is also expanding globally. “But Europe is in the midst of as harsh a recession as we’re having,” Sweet said.
OpenTable executives themselves cannot comment, during what’s known as the “quiet period” leading up to and shortly following the company’s public debut.
Some Silicon Valley IPOs are remembered as historic milestones. Netscape’s rocketing IPO in 1995 ushered in the dot-com era, with startups like Yahoo and eBay following suit. Google’s epic IPO in 2004 signaled the end of the dot-com bust and, to some, the beginning of the “Web 2.0” era.
The next milestone IPO could come from Facebook. Founder and CEO Mark Zuckerberg, in an internal memo to employees in March, said his company was seeking a new chief financial officer “with public company experience who can help take us to the next stage in our growth.” A Facebook spokesman at the time said that no IPO was imminent — “not even in a window of months.”
Scott Duke Harris can be reached at sdharris@mercurynews.com or 408-920-2704.
