Better, But Still Not Great

It certainly wasn’t the year everyone had hoped for, but at least 2009 was better than 2008 for venture-backed IPOs.

As of the second week of December, 11 venture-backed companies went public, raising a combined $1.6 billion, according to Thomson Reuters (publisher of VCJ). That compares to six venture-backed companies that raised $471 million in 2008.

On another positive note, eight of the 11 companies are trading above their IPO prices. The top performers as of Dec. 11 were SolarWinds (up 67% from its IPO price), Bridgepoint Education (up 56%) and OpenTable (up 38%).

The year’s three worst performers were Omeros (down 29% from its IPO price, as of Dec. 11), Cumberland Pharmaceuticals (down 19%) and Echo Global Logistics (down nearly 5%).

November’s sole VC-backed IPO, Fortinet (Nasdaq: FTNT), made an auspicious debut, raising $156 million. The network security provider priced 12 million shares at $12.50 apiece (above its range of $9 to $11), and its stock price rose to $16.62 by the close of its first day of trading, Nov. 18. As of Dec. 11, the stock was trading near $17 per share, about 35% above its IPO price.

Fortinet had previously raised about $84 million over four rounds from 2002 to 2005 from Acorn Campus Ventures, DCM, Defta Partners, Meritech Capital Partners, Redpoint Ventures and WI Harper Group.

Redpoint Ventures fared the best in the IPO. It sold 888,234 at $12.50 per share in the IPO for proceeds of $11.1 million, and it still owns 7.99 million shares, which were worth about $135 million at the Dec. 11 closing price of $16.94.

I think there’s going to be a good IPO market for the next six to nine months because there are so many good [VC-backed] companies that have grown to scale.

Cameron Lester

Meritech Capital Partners also did well. It sold 600,000 shares in the IPO for proceeds of $7.5 million, and it continues to hold 5.74 million shares worth about $97 million on Dec. 11.

Meanwhile, Defta Partners pulled in $8.8 million from its sale of 706,151 shares in the IPO, and it still owns 2.13 million shares valued at about $36 million on Dec. 11.

Finally, Acer Technology Venture America holds 400,000 shares of Fortinet stock worth about $6.8 million.

Stock holdings for Acorn Campus Ventures, DCM and WI Harper Group were not listed in Fortinet’s prospectus, suggesting they didn’t own large enough amounts required disclosure.

What will the New Year bring? At least some VCs and entrepreneurs believe the IPO momentum will continue, as six VC-funded companies registered to go public between November and mid-December: Financial Engines, provider of investment advice and portfolio management services; MaxLinear, a developer of integrated circuits for use in consumer electronics; QuinStreet, a provider of online direct marketing services; SPS Commerce, a developer of supply chain management software for e-commerce companies; Telegent Systems, which develops chips for mobile television; and Trius Therapeutics, a maker of antibiotics.

“I think there’s going to be a good IPO market for the next six to nine months because there are so many good companies that have grown to scale,” says Cameron Lester, a general partner at Azure Capital Partners. “The bar is very high now for the IPO market, but the thing that I think is different now is there are [venture-backed] companies of scale.” —Joanna Glasner and Lawrence Aragon