Abundance of IPOs launch in 2nd quarter

The second quarter wound to a close last week with a heavy dose of public offerings from venture-backed companies that were founded during the Internet bubble.

Last week’s surge of VC-funded tech IPO deals capped one of the stronger quarters in recent years. A total of 26 venture-funded companies went public on U.S. exchanges in the second quarter, based on preliminary data, up from 19 during the same period a year ago, according to Thomson Financial (publisher of PE Week). At least one more offering, from Internet phone service provider ShoreTel, was expected on Friday, after press time. The 27 VC-backed IPOs is the most since 27 VC-backed companies went public in the second quarter of 2004.

“It’s probably long overdue,” says John E. Fitzgibbon Jr., founder of IPOScoop.com, which tracks the new issues market. More than four years after the Nasdaq Composite Index hit its post-bubble lows, he says, investors have clear evidence that “technology is back and it stormed into the marketplace.”

When all was said and done, Q2 came to an end in a highly profitable week for venture capitalists as five VC-backed companies held their public trading debuts (not including ShoreTel), with shares of all but one posting a gain in first-day trading.

However, in looking ahead, the IPO market will slow over the next couple of weeks, as Wall Street denizens clear out for the Fourth of July, says Fitzgibbon. He expects the IPO pace to pick up again in mid-July, with offerings from several venture-backed companies on the launching pad, such as online tech recruiting service Dice Holdings and data warehouse appliance developer Netezza, set to price. As for venture capitalists, the forecast remains sizzling.

“They’re going to keep going to the bank,” he says. “There are good times ahead.”

Meanwhile, VC firms profited from many of the IPOs in Q2. Among the late quarter highlights, the Data Domain offering could generate returns for venture investors of more than $800 million, provided shares maintain their value when lockup expires. The Santa Clara, Calif.-based company, which develops enterprise protection storage systems for disk backup and network-based disaster recovery, raised about $41 million in funding from such investors as Greylock Partners, New Enterprise Associates and Sutter Hill Ventures. Greylock, Data Domain’s largest venture investor, held a 26% stake valued at about $340 million, followed by NEA (25% stake valued at $322 million) and Sutter Hill (17% stake valued at $187 million).

ComScore, a Reston, Va.-based company that collects and analyzes data about people’s online behavior, priced its 5.3 million share offering at $16.50 a share, above its anticipated range. Shares rose 44% in first-day trading to close at $23.47. On paper, ComScore generated sizeable returns for Accel Partners, its largest venture investor. Accel’s stake is 5.9 million shares, or 21%, which was valued at about $136 million. Other large backers included Institutional Venture Partners (8% stake valued at $50 million); Adams Street Partners (6% stake valued at $39 million) and Topspin Partners (4% stake valued at $27 million). The company raised $93 million in venture funding between 1999 and 2003.

Spreadtrum Communications, a venture-backed developer of wireless integrated circuit software for mobile equipment and semiconductor companies, provided another profitable debut for investors. The Shanghai-based company priced its 9 million American Depositary Share offering at $14 per share, above the anticipated range of $11 to $13. Spreadtrum lists several venture firms among its beneficial owners, with NEA controlling the largest number of shares. As of last week, NEA held a 20% stake valued at about $380 million. Other venture backers were funds affiliated with Fortune Venture Investment Group (7% stake valued at about $132 million) and Pacific Venture Partners (6% stake valued at about $109 million). Founded in 2001, Spreadtrum raised about $86 million in venture funding over the last six years.

Pros Holdings, which provides businesses with sales and pricing management software, generated a respectable return of its own in a Thursday market debut. The Houston-based company priced its 6.8 million offering at $11, the midpoint of its anticipated range. TA Associates and JMI Equity jointly invested $25 million in Pros Holdings in 1998. As of last week, TA’s 26% stake in the company was worth about $85 million. JMI’s 8% stake was valued at about $27 million.

Not every company had a rosy time with its IPO. AuthenTec, a Melbourne, Fla.-based provider of fingerprint authentication sensors, priced its 7.5 million share offering at $11 a share. Shares fell to $10 in first-day trading. Investors put about $71 million in the company. Authentec’s largest stakeholder, Sierra Ventures, had a 17% stake valued at $44 million. Other investors with sizeable holdings include Harris Corp. (14% valued at $36 million); TCG Holdings (10% valued at $26 million); and Advantage Capital Florida Partners (7% valued at $18 million).