It wasn’t without pain, but Rackspace Hosting Inc. (NYSE: RAX) managed to go public in August, making it just the sixth VC-backed company to pull off that feat on a U.S. exchange this year.
Rackspace’s IPO on Aug. 8 ended a VC-backed IPO dry spell that had lasted nearly four and a half months. The last VC-backed company to go public before Rackspace was CardioNet Inc., which went out on March 19.
San Antonio, Texas-based Rackspace, which offers Web hosting services, priced at $12.50, which was the lower end of an estimated range of $12 to $16. It opened at $10 and was still trading below $11 on Aug. 11.
Even with the disappointing debut, Rackspace paid off for its venture backers, which invested a total of $39.6 million in the company between 1999 and 2005. Norwest Venture Partners, Sequoia Capital and other venture backers collectively held about 37 million shares of Rackspace stock, according to the company’s proxy statement. Those shares were worth nearly $400 million on Aug. 11, resulting in a return of about 10x for the venture investors.
Norwest was the biggest VC shareholder in Rackspace, with 16.5 million shares worth about $177 million, followed by Sequoioa, with 11.8 million shares worth about $126 million.
Despite the harsh treatment from Wall Street, some companies remain optimistic that they can make it out. Thirty companies registered to go public in the second quarter, up from 23 in Q1 and 24 in Q4, according to Ernst & Young.
Among the venture-backed companies to register in August was A123 Systems Inc., a maker of lithium-ion batteries for Black & Decker power tools. The Watertown, Mass.-based company, which hopes to raise $175 million through an IPO, has raised more than $230 million in venture to date. Its biggest shareholders are North Bridge Venture Partners (which owns 7.8 million shares, or 13.7% of the pre-IPO total), individual investor Gururaj “Desh” Deshpande, a successful serial entrepreneur and the company’s chairman (who owns 7.3 million shares, or 12.7%), General Electric (5.9 million shares, or 12.7%), Qualcomm (5 million shares, or 8.8%), and Motorola (4.8 million shares, or 8.5%), according to its regulatory filing.
The filing did not break out the holdings of A123’s other venture backers, which include Alliance Capital Partners, Boston University, CMEA Ventures, FA Technology Ventures, OnPoint Technologies, MIT, Procter & Gamble and Sequoia Capital.
While some companies are lining up for IPOs, many more are cancelling their plans. A total of 61 companies have withdrawn IPOs on U.S. exchanges this year (as of Aug. 11), compared to 71 withdrawn in all of 2007, according to Thomson Reuters. At least 24 of the cancellations have come from venture-backed companies. —Lawrence Aragon