All Lined Up to IPO

The IPO market in late January looked a lot like a popular nightclub a half-hour shy of opening. A throng of people was pressed up against the velvet ropes, but the bouncers at the door weren’t letting anyone in, no matter how fashionable or well-connected.

The line of those waiting for a market debut grew longer in December. A total of nine venture-backed companies filed to go public that month, collectively seeking to raise more than $1 billion. New IPO candidates included several heavily funded startups, such as Solyndra, a maker of next-generation solar panels that filed for a $300 million offering, and Codexis, a developer of enzymes for industrial customers that hopes to raise $100 million.

Actual debuts remain scarce. Not a single venture-backed company went public in the first half of January. Just one made it public the prior month in a lackluster debut: China Nuokang Bio-Pharmaceutical, a Shenyang, China-based drug manufacturer backed by HBM BioVentures and Sequoia Capital.

Despite 2010’s slow start, optimism abounds regarding prospects for a near-term IPO market rebound.

“Judging from recent filing activity, we expect the return of the growth IPO in 2010, led by profitable, fast-growing technology names and a number of biotechs,” analysts at Renaissance Capital wrote in a January report. “In addition, we expect several private equity firms to begin liquidating their vintage holdings via the IPO market. All in all, 2010 could mark the beginning of a strong IPO cycle.”

Certainly there are plenty of compelling companies prepared to capitalize on the re-opening of the IPO window. In addition to Solyndra and Codexis, the list of companies that filed to go public in December includes three medical and life sciences companies, three online software service providers and one wireless startup.

The life sciences companies include Aveo Pharmaceuticals, a developer of cancer therapeutics seeking to raise $86 million, Rules-Based Medicine, a developer of protein biomarker products looking to raise $90 million, and Tengion, a developer of bioengineered organs and tissue looking to raise $40 million.

The three software companies that filed to go public—Financial Engines, ReachLocal and SPS Commerce—are collectively trying to raise about $250 million.

Financial Engines, which provides portfolio management tools to investors, hopes to raise $100 million. It previously raised $139 million in venture funding from backers including Foundation Capital Leadership Fund, New Enterprise Associates and Oak Hill Capital Partners.

ReachLocal, a provider of services for targeting local customers online, is also trying to raise $100 million via IPO. The Woodland Hills, Calif.-based company previously raised $73 million from Galleon Group, Rho Ventures, VantagePoint Venture Partners and others.

Finally, SPS Commerce, a provider of e-commerce software, is seeking to raise $46 million. It previously raised $71 million from Adams Street Partners, Granite Capital Partners, River Cities Capital Funds, St. Paul Venture Capital and others.

Rounding out the list of nine IPO candidates is voice-over-IP infrastructure provider Meru Networks, which wants to raise $86 million.

By far the most closely watched offering in the current crop is Solyndra. The Fremont, Calif.-based maker of photovoltaic products is planning one of the largest Nasdaq offerings in recent years. It has already raised more than $1 billion in financing, including $512 million from VCs (including Argonaut Private Equity, CMEA Capital, Redpoint Ventures, Rockport Capital Partners and U.S. Venture Partners) and $535 million in a loan from the federal government.

Given that early January is commonly a slow period for new offerings, even in a robust IPO climate, 2010’s sluggish start has not yet dampened optimism among venture backers. Hope remains that the door will open soon for the long line of companies in registration.