After Jubilant Spring, Summer Turns Rocky for IPOs

In the long run, it’s hard to keep a good IPO down.

In the short run, however, it’s fairly easy, amid an unsettling macroeconomic environment, to compel companies to delay planned offerings for weeks, to reduce expected share price ranges, or, for those already publicly traded, to watch once-buoyant stock values spiral downward.

The short-term view seems to be the path that venture-backed companies eyeing the public market are facing for the time being.

For those already in the IPO pipeline, July and the initial half of August proved a turbulent period, with the mood among investors shifting rapidly from effervescent to panicky.

Enthusiasm for high-growth consumer Internet companies enabled several in the space to generate big gains in early trading. But in the wake of the debt ceiling imbroglio and S&P downgrade of U.S. bonds, IPO market watchers were left worrying that the window for going public was in danger of shutting down.

“Disruptions in the overall market and a variety of recent macroeconomic events may present considerable challenges for companies looking to execute an IPO in the coming months,” says Henri Leveque, leader of PricewaterhouseCoopers’ capital markets and accounting advisory practice, in an August report to clients.

Given that the summer months, particularly August, are typically a slower time for new offerings, Leveque adds that it remains to be seen how quickly market confidence returns and whether companies waiting in the wings will move forward with their IPO plans come autumn.

For now, venture investors can take some solace in the knowledge that 2011 is already close to surpassing 2010 for IPO returns.

A total of 41 companies had raised $7.3 billion this year, as of the second week of August, according to Thomson Reuters (publisher of VCJ). In comparison, venture-backed IPOs raised a total of $7.4 billion in all of 2010.

And while investor appetites for IPOs diminished some in July, a number of offerings still made it to market in July and early August.

There were three venture-backed offerings in July—real estate website Zillow, communications software provider Tangoe and pharmaceutical developer Horizon Pharma.

The ribbon for largest first-day gains went to Zillow, which raised $69 million in its July 20 IPO. Shares of the real estate data company tripled in first-day trading before falling in the following weeks. Shareholders include TCV Funds (29.8% pre-IPO stake), Benchmark Capital (19%), and PAR Investment Partners (11%).

A few days later, Tangoe, an Orange, Conn.-based provider of software for managing communications equipment and services, raised $88 million in its market debut. Backers in the company, which previously pulled in $28.4 million in funding, according to Thomson Reuters, include Sevin Rosen Funds (16.4% pre-IPO stake), North Atlantic Capital (9.6%), IBM (6%) and HO2 Partners (5.2%).

July and the initial half of August proved a turbulent period, with the mood among investors shifting rapidly from effervescent to panicky.

 

Soon afterward, Horizon Pharma made its entry, raising $49.5 million after pricing shares just below its targeted range. Shareholders include Atlas Venture Fund (17.5%), Essex Woodlands Health Ventures (14.1%) and Scale Venture Partners (13.5%).

Also of note, was PE-backed earphone maker Skullcandy. On July 20, Park City, Utah-based Skullcandy, maker of sporty headphones and earbuds, raised $189 million in its July 20 IPO, after pricing above its expected range. Backers include Goode Partners (14.3% stake) and Mercato Partners (6.9% stake).

While the IPO pace slowed in August, online backup provider Carbonite still made it out on Aug. 11, posting a 23% first-day jump after pricing shares below their anticipated range and raising a total of $62.5 million. Others opted to postpone, including motion sensing technology developer Invensense and tax-advantaged account provider Wageworks.

Meanwhile, a few more companies recently added their names to the IPO wait list, including:

• San Francisco-based social game developer Zynga Game Network filed to raise up to $1 billion. The company raised $377 in venture funding, according to Thomson Reuters, as well as an investment of undisclosed size from Google, and several hundred million dollars more in secondary share purchases from DST Global and others. Its largest backers include Kleiner Perkins Caufield & Byers (11.2%), Institutional Venture Partners (6.1%), Union Square Ventures (5.4%), Foundry Venture Capital (6.1%) and Avalon Ventures (6.1%).

• Pleasanton, Calif.-based Zeltiq Aesthetics, a developer of technologies for fat elimination and other cosmetic procedures, filed to raise up to $115 million. It has raised $104 million since 2005 from backers including Aisling Capital, Frazier Healthcare Ventures, Venrock and Advanced Technology Ventures.

• Burlington, Mass.-based EXA, a provider of fluid flow analysis software, filed to go public on Aug. 3. It’s backed by Fidelity Ventures, which owns a 42% stake.

• San Jose-based Vocera Communications, a developer of WiFi voice communications technology, filed on Aug. 1. Backers include Venrock (17.3%), Vanguard Ventures (15.6%), RRE Ventures (13.4%) and GGV Capital (9.8%).

• San Jose-based Intermolecular, a developer of materials for clean energy and semiconductor products, filed to go public on July 29. Backers include Redpoint Ventures (20.9%), CMEA Capital (20.8%), and U.S. Venture Partners (14.8%).

• Maple Plain, Minn.-based Proto Labs, a developer of injection molded products that has raised $70 million in venture funding to date, filed to go public on July 22. Backers include North Bridge Growth Equity (31.7%).

• Burlington, Mass.-based Demandware, a developer of ecommerce software that filed to go public on July 15, has raised $66 million in venture funding since 2004. Shareholders include North Bridge Venture Partners (33.8% stake) and General Catalyst Partners (33.8%).

Joanna Glasner can be reached at joanna.glasner@thomsonreuters and on Twitter at @jglasner.