IPOs hold up as market swoons

After peaking in early summer, the sizzling IPO market took a respite in July and August, with fewer venture-backed companies squeezing out offerings amid a tumultuous period for the broader markets.

However, the market downturn didn’t diminish investors’ appetite for a few sought-after deals. Top venture-backed IPO performers in July included BladeLogic, a data center software provider, and Netezza, a storage appliance maker. Standout debuts as of mid-August were MercadoLibre, an auction site popular in Latin American, and Masimo, a maker of pulse oximetry products.

For the most part, IPO investors took a back-to-basics approach, says John Fitzgibbon, founder of IPOScoop.com, which tracks the new issues market. They were looking for “companies that have workable business plans, produce increasing revenues and are profitable.”

Unprofitable life sciences companies had a tougher time wooing investors. Just one, vascular therapy developer ImaRX Therapeutics, went public in July. Shares dipped in first-day trading and fell a further 15% over the next month.

While offering volumes were down from June, when nine VC-backed companies went public, they were still up significantly from a year ago. In all, six venture-backed companies went public during July raising $393 million. (Those numbers do not include the July IPO of Lululemon Athletica, which had backing from Highland Capital Partners and Advent International, because Lululemon’s private financing of $92.5 million in December 2005 was classified as a buyout, not a venture deal.) During the same period a year ago, just one IPO made it to market and raised a total of $10 million.

Shares of most newly public companies held up during July, too. Of the 75 venture-backed companies that went public between August 2006 and July 2007, 50 of them, or 66.6%, were trading at or above their IPO prices. Riverbed Technology, developer of IT infrastructure software, held the top gainer spot, rising by 353 percent.

Prospects for venture-backed IPOs look encouraging for the weeks ahead, Fitzgibbon says. The new issues market probably won’t regain momentum until a couple of weeks after the Labor Day holiday. But by late September, he expects the pipeline of new deals to be quite robust and companies to be going public at a brisk pace.

“If the stock market had to sell off, this was a perfect time,” he says. “In about four to six weeks, we can be looking at a much more investor friendly market,” he says. —Joanna Glasner