It was the best of times, it was… well, it was still pretty good.
Despite an initial public offering bottleneck that arrived in mid-spring courtesy of the wildly fluctuating public markets, overall first half IPO volume for venture-backed companies managed to reach lofty heights this year with a total of 131 firms raising approximately $12.81 billion.
While that figure may not quite match up against second half activity from 1999, it was still more than enough to almost double last year’s first half, which only brought in about $7.1 billion for venture-backed firms. Moreover, second quarter IPO volume for 2000, which was said to have borne the brunt of Nasdaq’s burden, performed admirably with a hearty $4.3 billion raised from 54 offerings.
“It was a truly remarkable time,” said Benjamin McCleary, an executive with McFarland Dewey & Co., of the past year’s IPO activity. “I don’t think we’ve seen another period quite like it.”
Indeed, it was a half in which the dotcom millionaire ruled and retail investors continued to judge investment advisors based on their relative access to new IPOs, rather than on their relative track records when it came to overall returns.
The actual spark that caused this first half venture-backed IPO explosion, however, is still a matter of some debate. For some, like McCleary, it’s pretty much a simple case of supply and demand.
“This is industry-driven,” he said. “Since venture capital firms have been pouring so much money into these start-up companies – especially in the Internet sector – there’s obviously going to be more venture-backed IPOs out in the market.”
Although such an opinion is not uncommon, the venture capital community itself has a far different take on the situation. For VCs, the first half of 2000 was a time in which they often found themselves virtually competing directly with the public markets as underwriters and twenty-something chief executives pushed for the recognition and rewards believed to accompany an IPO.
“I think that the public markets were taking my job away from me for a while,” said Jim Armstrong, managing partner with idealab Capital Partners. “You used to have to show two or three or four quarters of profitability before you could go public, but then we got this I just put up a Web site so now I’ll file my S-1 mentality’ and everything just got silly.”
Leading this so-called silliness in the first half were communications and Internet-specific companies. Communications plays, led by a mammoth $409.8 million offering from Carrier 1 International SA, raised just under $3.86 billion with average deals coming in at around $154.4 million.
For their part, Internet-specific companies brought in over $3.74 billion, although the average investment size was significantly smaller since 42 Internet-specific firms went public as compared with only 25 communications offerings. The largest Internet-specific deal came from Waltham, Mass.-based StorageNetworks Inc., which executed a $243 million IPO on June 29.
As for what the second half will hold, it is likely that the last few months will prove to be legitimate indicators. While strong venture-backed companies like StorageNetworks will successfully find their way into the public market, there will be a high number of weaker firms withdrawing their registration papers and looking for emergency venture funding.
“I guess that there are some firms waiting for public investors to get stupid again, but it’s just not going to happen,” Armstrong said. “There will, of course, be some good opportunities out there… and the Internet is still growing, but some of the companies involved are still really young and just need a bit more time to grow.”