Start To Get Liquid as IPOs Heat Up –

It’s starting to be fun to be a venture capitalist again. Thirteen venture-backed companies went public in the first quarter, raising more than $2.7 billion. Not only does that figure surpass the entire VC-backed tally for 2003, but it is also the highest quarterly total since the third quarter of 2000.

And the good times may keep rolling: Another 33 VC-backed companies filed IPO registration papers in the first quarter. Collectively, they’re seeking more than $3.45 billion in IPO proceeds. Leading the way among the new filings was MetroPCS Inc., a Dallas-based telecom provider that hopes to raise $212.5 million. Its lengthy list of backers includes Accel Partners, Battery Ventures and JPMorgan Partners.

Alta Partners had the most IPOs in the quarter, with six NEA had three.

The surge in VC-backed offerings is part of an overall increase in IPOs. A total of 32 companies had gone public on U.S. exchanges during the first quarter, or nealry half of the 68 total companies that went public in all of 2003. For the second quarter, longtime IPO analyst John Fitzgibbon expects “more of the same.”

The rise in both IPOs and new filings “is validation that the venture industry is ready for some sort of return to normalcy,” says Jesse Reyes, vice president and director of research for Thomson Venture Economics (publisher of VCJ). “However, I’m not sure which is more influential in this surge – the abundance of companies ready to exit or the fact that bankers feel the appetite for new IPOs.”

China Chips In

The largest venture-backed IPO during the quarter – and in history – was Semiconductor Manufacturing International Corp. (SMIC), a Shanghai, China-based chipmaker whose offering netted $1.8 billion. SMIC is just the second VC-backed company to ever break the $1 billion IPO barrier, joining the July 2000 offering from networking company Corvis Corp.

When SMIC closed on a $25 million round of VC funding in late 2002, it was given a post-money valuation of around $2.74 billion. Following its IPO, the company was worth more than $6.64 billion. Prior to the IPO the company’s largest shareholders (outside of government entities) were Walden International, New Enterprise Associates and H&Q Asia Pacific.

The best-performing venture-backed IPO from the quarter was EyeTech Pharmaceuticals Inc., one of seven VC-backed biotech companies to go public during the period. Its stock price closed at $31.97 on April 1, up 52.2% from its $21 offering price which priced a $136.5 million offering on Jan. 30. The company surged on its first day of trading, despite having no internally-developed products on the shelves and just one candidate in the clinic. That candidate, however, is a potential blockbuster that promises to treat a blindness-inducing disease prevalent among seniors and older diabetics. EyeTech received more than $165 million in VC funding from JPMorgan Partners, Alta Partners, Schroder Ventures, MPM Capital, and strategic partner Pfizer Inc.

EyeTech was the only major gainer among the group. The next-biggest gainer was wireless chipmaker Atheros, which saw its stock price increase 21.4% after its IPO.

No Runners

Of the 13 VC-backed companies that went public, five were trading below their offering prices on April 1 and another was flat. But that lackluster performance has not staunched the optimism of companies queuing up to go public. A near-record 51 companies registered to go public in March alone, says Fitzgibbon, who writes about IPOs for Redherring.com. The largest monthly total of filings on record dates back to spring 2000, when 62 companies filed, Fitzgibbon says.

The large number of filings coincides with a very upbeat outlook on Wall Street. The so-called “specialist short ratio” – which tracks short positions held by market makers for the New York Stock Exchange – came in below 30% in nine of 12 weeks as of the first week of April, Fitzgibbon says.

“The theory is that anything over 60% is bearish and anything under 40% is bullish,” he explains. “It is very rare that it drops below 30%, and each time it has [the stock market] has had a hell of a run.”

Email: daniel.primack@thomson.com