First Quarter IPOs Explode onto Scene –

NEW YORK – Venture firms returned to the initial public offering market in the first quarter, raising $1.85 billion through 26 initial public offerings in the quarter, according to preliminary data gathered by Venture Economics Information Services, a data company affiliated with VCJ, and sister publications Private Equity Week and The IPO Reporter.

Internet-related entities of all stripes continued to lead the charge into the public arena and likely will continue to do so throughout the year. In fact, the only variation public investors might expect to see in the upcoming months is the entrance of companies that offer infrastructure support to the Internet joining the e-retailer sites that have been the darlings of the market.

The most significant trend to emerge among venture-backed offerings in the quarter was the increased occurrence of companies taking in large rounds of private equity just before, and in some cases after, filing IPO paperwork with the Securities and Exchange Commission. Generally, the rationale given for these deals spoke to the fear created by the brief, yet painful, closure of the IPO window last fall, which left some companies in registration short of working capital. Secondary reasons given by chief executives for these last-minute private infusions included adding credibility to their public offerings that institutional investors desire or simply taking advantage of the free public attention accorded high-flying Internet IPOs.

Recent examples of companies that went that route include Juno Online Services Inc. of New York raising $65 million March 1 and filing March 5, and Rhythms Netconnections Inc. of Englewood, Colo., raising $60 million from corporate investors several weeks after filing its S-1.

Other instances of such deals from earlier in the quarter include DVD Express, $12 million, USinternetworking, $62 million, Covad Communications, $45 million, and Critical Path (story page 54), $33 million. Critical Path and Covad both priced last quarter and went through the roof. After pricing at $24 on March 29, Critical Path ballooned to $74.88 for a 212% increase, according to The IPO Reporter. Covad priced $18 on Jan. 21 and after two full months showed a 279% increase to $68.25.

Remarkably, these two are merely indicative of the quarter and actually pale in comparison to a number of new issues. For the quarter, 26 venture-backed companies held initial public offerings. Of those, two were trading below their offering price at quarter end, and five had realized less than a 100% increase over offering levels. The other 19 issues at least doubled the offering level, led by the Lehman Brothers-managed offering of VerticalNet Inc. (VCJ, April, page 61), which rocketed 570% to $107.25 from the $16 offering price February 10.

Healtheon Corp. (VCJ, April, page 59) provided the second strongest performance as it jumped 463% to $45 from the $8 offering price on February 10. Other companies that tripled their offering prices included Inc. (story page 57), which jumped 331%, Vignette Corp. (VCJ, April, page 61), which jumped 314%, and Bottomline Technologies Inc. (VCJ, April, page 58), which jumped 368%.

No one venture firm has led all others down the IPO aisle, as Kleiner Perkins Caufield & Byers was the only firm to be the lead venture backer on more than one offering. In fact, looking at the deals that were filed last quarter, the indication is that the wealth will continue to be spread around as venture firms are, for all intents and purposes, tripping over themselves to get Internet-related portfolio companies into the current market.

Among underwriters, Morgan Stanley Dean Witter, Credit Suisse First Boston and BancBoston Robertson Stephens are jockeying to be front-runner, each having lead managed four venture-backed offerings. Perennial powerhouse Goldman, Sachs & Co., however, has at least five offerings in the pipeline, and Merrill Lynch, Donaldson, Lufkin & Jenrette, BT Alex. Brown and Salomon Smith Barney also have multiple deals in line.