Late Run Boosts Hopes for VC-Backed IPOs –

What started out as a bleak year ended on a high note for venture-backed IPOs, giving venture firms hope for a continued surge in the New Year. In particular, the fourth quarter was the busiest VC-backed IPO market in three years, helping VC-backed companies raise more money through new issues than in any quarter since the second quarter of 2002.

All told, 29 U.S.-based, venture-backed startups went public last year (see table, page tk), up from 24 a year earlier but down from 41 in 2001. The overall dollar amount raised by the initial public offerings totaled $2.02 billion last year, down from $2.47 billion in ’02 and $3.48 billion in ’01.

Notably, the average stock price of a venture-backed new issue increased 33% from its IPO date to the end of the year, but the aftermarket performance of the group declined sharply as more new issues were pushed out the door in the second half. The aftermarket peaked in July with the average venture-backed stock price up 63%.

Biotech shares were in large part responsible for the downturn in aftermarket performance. Eight such companies were able to go public last year, but the market’s appetite for them quickly soured. As a group, their average stock price was flat from IPO date to the end of last year, but that’s because of the strong performance of just a single stock – Neurochem, which was up 117% for the year. If you take Neurochem out of the mix, the group’s overall share price would have been off by about 15%

Oddly enough, the best performing VC-backed IPO was for a wholesale mortage company, Accredited Home Lenders (Nasdaq: LEND). It went public at $8 per share in February and almost quadrupled in price by the end of the year. That stellar performance helped to make shareholder Crosspoint Venture Capital the biggest IPO winner among VCs in 2003.

In addition to Accredited, Crosspoint was a large stockholder in iPass, which provides access for Internet service providers, and Callidus Software, a developer of incentive management software. Crosspoint’s shares in the three companies combined were valued at about $272.7 million at the time of their offerings. Assuming the firm held onto all of the shares, the value of Crosspoint’s stock would have risen to $376.8 million by the end of last year.

Q4 Action

A total of 17 VC-backed companies raised $1.04 billion by pricing on U.S. stock exchanges during the fourth quarter. It was the same number of VC-backed companies that had priced in the past five quarters combined, and more money than had been raised over the first nine months of last year.

Leading the Q4 cavalcade was Tessera Technologies Inc. (Nasdaq: TSRA), a San Jose, Calif.-based semiconductor packaging company that priced 7.5 million shares at $13 per share on Nov. 12. The total IPO take was $97.5 million, with the company netting $39 million and selling shareholders receiving $58.5 million. Venture investors included Apax Partners (22.82% pre-IPO stake, 18.18% post-IPO stake), Concord Partners (11.17% pre, 10.29% post) and Landmark Partners (6.13% pre, 5.65% post).

Another big winner (at least temporarily) was the life sciences sector, which contributed seven offerings to the Q4 2003 VC-backed pot. The largest deal came from Boulder, Colo.-based Pharmion Corp. (Nasdaq: PHRM), which raised $84 million by pricing 6 million shares at $14 per share on Nov. 5.

The company had previously raised nearly $130 million in total venture funding, including a $40 million infusion in late 2002 at a post-money valuation of approximately $163 million. Pharmion shareholders at the time of the IPO – none of which sold stock as part of the IPO – included New Enterprise Associates, Nomura International, ProQuest Investments, Versant Ventures, Domain Associates, Bay City Capital, General Electric Pension Trust, Celgene Corp. and Aberdare Ventures.

Other VC-backed life sciences companies to go public in Q4 2003 included Acusphere Inc., Advancis Pharmaceutical Corp., CancerVax Corp., Genitope Inc., Myogen Inc. and NitroMed Inc. The downside to all this, however, was that only two of the quarter’s life sciences entries have experienced aftermarket success – Myogen and Pharmion.

The quarter’s greatest aftermarket gainer came from the oft-forgotten (except by Google fans) Internet space, where online travel company Inc. (Nasdaq: CTRP) watched its stock more than double since going public Dec. 8. The company, based in Shanghai, China, priced 4.2 million American Depository Shares at $18 per share, and saw its stock price rocket about 110% to $37.80 by market close last Wednesday.

Venture capital shareholders in include The Carlyle Group (25.72% pre-IPO ownership, 18.3% post-IPO ownership), Tiger Technology Private Investment Partners (8.03% pre, 6.7% post), IDG Technology Venture Management (7.33% pre, 5.21% post), and S.I. Technology Venture Capital (5.79% pre, 4.12% post).