IPO pace slowed by market volatility

A handful of venture-backed companies launched IPOs in the two weeks prior to Thanksgiving, providing a modest spark of activity amid a growing backlog of pending IPOs.

But market watchers say that the pace of new issues probably won’t pick up significantly until conditions in the broader markets improve. If unusually high day-to-day volatility on major indexes persists, companies in the IPO pipeline will likely continue to delay their debuts.

“A lot of companies are ready now, they’re just looking for a little bit of stability,” says Scott Gehsmann, a capital markets partner in PricewaterhouseCoopers’ transaction services group. “Nobody wants to price their deal on a day the Dow’s down 300 points.”

Even with the broader markets gyrating, Q4 IPO activity is off to a much better start than last year. In the first six weeks of the quarter, 19 venture-backed companies went public, raising just over $2 billion in their offerings, according to Thomson Financial (publisher of PE Week). Over the same period last year, 10 companies went public, raising $747 million.

For the month to date, a total of 19 PE-backed companies have gone public, including 13 VC-backed and six buyout-backed companies.

Most recently, venture investors stand to profit from new issues in areas as diverse as employee management software, data storage, e-commerce, obesity treatment and crystal growth technology. Five-venture-backed companies—SuccessFactors, 3PAR Technologies, Internet Brands, EnteroMedics and Rubicon Technology—have debuted in the past two weeks, with performance ranging from poor to good.

The latest to debut, San Mateo, Calif-based SuccessFactors, posted an appropriately successful first-day performance. Shares of the human resources software provider soared 33% in initial trading Tuesday, climbing from an IPO price of $10 per share to close at $13.25. The company sold 10 million shares in the IPO, with investors selling an additional 790,000 shares.

SuccessFactors raised about $57 million in venture funding between 1994 and 2006 from a dozen VC investors. Greylock Partners controlled the largest stake in the company, with 12.6 million shares, or 32% pre-IPO. Other significant shareholders include TPG Ventures (7.9 million shares), Cardinal Ventures (3.6 million shares), Canaan Partners (3 million shares), Emergence Capital Partners (2.6 million shares) and Granite Global Ventures (2.1 million shares).

Fremont, Calif.-based 3PAR, a developer of storage servers and systems for large businesses, raised $105 million in its IPO on Nov. 16. Shares priced at $14, above the anticipated range of $11 to $13. The stock rose as high as $18 in early trading, before dipping back to about $14 last week.

Venture investors appear to have done well on the deal. 3PAR’s largest venture shareholder, Mayfield Fund, owned 10.25 million shares, a 19.5% stake valued at about $144 million at the current share price. Other significant venture stakeholders include Menlo Ventures (9.3 million shares) and Worldview Technology Partners (7.9 million shares). 3Par had raised about $183 million in venture funding between 1999 and 2006.

Internet Brands, an operator of e-commerce websites for the auto, home and travel industries, debuted to more lackluster demand. The El Segundo, Calif.-based company priced its 9.6 million-share offering at $8 per share on Nov. 16, below the anticipated range of $10 to $12. The stock price has been flat in aftermarket trading.

The company attracted a large amount of venture capital during the dot-com bubble, between 1998 and 2000, as more than a dozen venture investors poured about $356 million in the company, according to Thomson Financial. Internet Brands’ total market capitalization now hovers at about $315 million.

Startup incubator Idealab is Internet Brands’ largest stakeholder, with 11.9 million Class A shares, or 31% of the total prior to the offering. Foundation Capital and Clearstone Venture Management had 3.3 million and 2.3 million shares, respectively.

EnteroMedics, a developer of implantable systems to treat obesity and other gastrointestinal disorders, raised about $40 million in its IPO on Nov. 14. The company priced 5 million shares at $8 per share, which was the low end of an $8 to $9 range.

The Saint Paul, Minn.-based company had raised about $65 million in total VC funding since its 2002 inception. Its largest venture backer is MPM Capital, with 3.4 million shares, or 31% of the total. Other investors include Bay City Capital (2.3 million shares), Aberdare Ventures (1.5 million shares), InterWest Partners (1.4 million shares), Onset Ventures (865,000 shares) and Charter Life Sciences (623,000 shares).

Rubicon Technology, a developer of sapphire crystals for use in light emitting diode (LED) displays, semiconductor products and other optical applications, raised $94 million in its IPO. The company priced its 6.7 million-share offering at $14 per share, the top of its anticipated range. Shares were trading at about $19 a week later, with Rubicon’s market cap hovering at nearly $260 million.

Cross Atlantic Technology Partners holds the largest stake in Rubicon with 4.4 million shares, or 32% of the total. Other venture backers include the Co-Investment 2000 Fund (3.9 million shares), Gazelle TechVentures (2.5 million shares), and KB Partners (1.4 million shares).