BigBand IPO exit is music to ears of VCs

Shares of BigBand Networks, a developer of technology for distributing digital media, soared in its market debut last week, generating returns for nine venture funds that invested in the company over the past eight years.

Shares of BigBand rose 31% in first-day trading Thursday, closing at $17 a share. The company raised $139 million in the offering, selling 10.7 million shares of common stock at $13 each. The offering also set the stage for a profitable exit for venture investors, who are restricted from selling shares until later this year. Venture funds invested $90 million in BigBand over six rounds of financing between 1999 and 2004, according to Thomson Financial (publisher of PE Week).

“We are thrilled,” says Bruce Sachs, a BigBand board member and partner at Charles River Ventures (CRV), which invested in the company’s expansion rounds in 2002 and 2004. Sachs adds that the offering delivered a “fantastic performance in a choppy market.”

Redpoint Ventures and CRV are the largest venture stockholders in BigBand, owning 23% and 19%, respectively, of outstanding shares after the offering. Redpoint’s shares were worth $221 million and CRV’s were worth $187 million as of last Thursday.

Other venture funds with significant stakes include Meritech Capital (which owned 8.5% of shares after the IPO), Evergreen Partners (6%), Pilot House Ventures (6%) and Cedar Funds (4%).

Sachs says that the company’s venture backers had to wait until this year for conditions to be suitable for an exit.

“The IPO market was not really open until recently,” he said. “The company kept investing in growth and waited until the market would be receptive.”

BigBand’s offering is one of several launched in recent weeks by VC-backed companies which raised initial funding during the dot-com boom. Other recent offerings include those carried out by wireless broadband network builder Clearwire, which raised $600 million in its IPO the week before BigBand’s debut, and security service provider SoureFire, which raised $78 million in its IPO.

However, BigBand is profitable, unlike Clearwire and SourceFire. The Redwood City, Calif.-based company reported a profit of $13 million last year on sales of $177 million, compared to a loss of more than $100 million in 2005 on $98 million in revenue.

Santo Politi, a general partner and Spark Capital, attributed investors’ warm reception to the IPO to the company’s fundamentals and growth prospects.

“They are in the midst of a market that is very rapidly growing… and their revenues are very predictable,”says Politi, who was a director of BigBand when he was with CRV.

Demand for digital video is a key factor fueling BigBand’s growth. The company sells platforms that enable cable and telephone companies to offer video, voice and data services across coaxial, fiber and copper networks. BigBand sells software and hardware to more than 100 customers globally, including Cablevision, Charter, Comcast, Cox, Time Warner Cable and Verizon, six of the 10 largest telecom and cable service providers nationwide.

BigBand says that it plans to use the proceeds of the offering to repay $14 million in loans owed to Silicon Valley Bank for working capital and other general corporate purposes, and possibly for acquisitions of complementary businesses.

Potentially, BigBand could also use its stock as currency in future acquisitions. As of Thursday’s Nasdaq close, the company had a market capitalization of about $850 million.