Eight is enough

It looks like the IPO window has finally reopened. Eight venture-backed companies went public in March, raising $1.17 billion. That was up from just two venture-backed IPOs that raised $120 million in March 2006.

The average issue size of the deals so far this year is $122 million, up from $54 million in the same period last year.

The newly public companies are Aruba Networks, BigBand Networks, Clearwire, Glu Mobile, GSI Technology, SenoRx, Sourcefire and Tongjitang Chinese Medicines.

Significantly, just three of the VC-backed companies that went public were profitable (BigBand, GSI and Tongjitang), indicating that Wall Street is now receptive to companies with strong growth prospects even if they haven’t yet turned a profit. That is a big change from the past two years.

And the unprofitable companies aren’t necessarily getting hammered in the aftermarket. Of the five best performers among the new issues for March, three are losing money. The top performer (BigBand) is profitable, but the second best performer (Aruba) is not. Public investors were willing to look past Aruba’s three straight years of losses because its revenue is ramping sharply—going from about $1 million in fiscal 2004 to more than $72 million in fiscal 2006, as more enterprises buy its WiFi switches. Aruba priced at $11 (above its range of $8 to $10) and closed at $14.67 at the end of March.

This is not to suggest that Wall Street has thrown its standards out the window. Craig McCaw’s Clearwire got a cool reception. It priced at $25 (the top of its range) and held fairly steady on its first day, but by the end of the month its shares had dropped to $20.47. Investors were happy to see its revenue shoot up from $33 million in 2005 to $100 million in 2006, but they were worried about the size of its losses. The WiMax provider posted a net loss of $284 million in 2006, more than double its net loss a year earlier, and says it expects to see significant losses for the foreseeable future. —Lawrence Aragon