“The IPO market is back,” declares John Fitzgibbon Jr., a veteran IPO analyst who now hangs his hat at 123Jump.com. OK, he may be jumping the gun, but it’s hard not to be enthusiastic in light of the warm reception given to recent venture-backed offerings.
Fitzgibbon is convinced the tide has turned because the few deals that have debuted this year have generated significant gains in the aftermarket. In particular, he points to the outstanding performance of four venture-backed IPOs: Digital Theater Systems Inc. (DTSI); FormFactor Inc. (FORM); iPass Inc. (IPAS); and NetGear Inc. (NTGR). All four launched their IPOs this summer and each of the California-based tech companies was trading about 30% above its offering price in August. (Note: The chart below shows closing prices as of July 31. -Ed.)
The difference between this year and last year is that only 14 of the 55 or so new issues last year closed above their initial offering prices. As of Aug. 2, 2002, all IPOs were down by an average of 8.7%.
This year has seen a rebound, particularly with the six venture-backed companies that have gone public. Their prices increased by an average of 40% from their initial offerings as of July 31. The average VC-backed company saw its stock increase from an issue price of $13.83 to a close of $19.42 during that time, according to data gathered by Thomson Venture Economics (publisher of VCJ).
Overall, the 10 companies in the VCJ IPO Aftermarket have seen the value of their shares spike by an average of 63% from their opening prices to their closing prices on July 31. That performance handily outpaces the resurgence in the NASDAQ, which has gained about 30% since its low of 1,271.47 on March 11.
Part of the reason for the strong showing of this year’s IPOs is that VCs and underwriters have been very selective about what they’ve brought to market. Nearly all of the companies are showing significant sales growth and earnings, something that the market is demanding. That tighter screen has meant that fewer companies have made it out. Just 22 IPOs debuted through mid-August, in contrast to less than 60 during the same period last year, which itself was a relatively slow year for IPOs.
Fitzgibbon is convinced that the worst is behind us. “If I were a venture capitalist with a few tech companies in my portfolio, then I would be excited,” he says. “The tech sector isn’t making a comeback – it is back.”
Since everything is cyclical, Fitzgibbon expects the trend to continue for the remainder of this year and into next. Among the tech companies that might make a splash on the IPO market is Google Inc., which has been rumored for some time that it would go public in the not-so-distant future. The search engine company received $25 million in early-stage venture backing in 1999 from Sequoia Capital and Kleiner Perkins Caufield and Byers.
-Alastair Goldfisher, Managing Editor