Six companies primed as IPO market awakens

Investors, encouraged by a growing number of acquisitions and public floats in the past few months, are keeping a close eye on a coterie of promising startups in Silicon Valley.

An informal poll of venture capitalists and others pointed to six privately held companies as the ripest for acquisition or readiness to go public in industries ranging from alternative energy to social networking.

For now, the six companies based in Silicon Valley say they intend to keep growing rather than agreeing to be acquired or go public during the recession.

The top six are business social network LinkedIn Corp.; solar panel maker Solyndra Inc.; smart grid company Silver Spring Networks Inc.; casual games company Zynga Game Network Inc., whose products run on social networks, such as Facebook; property and casualty software developer Guidewire Software Inc.; and call center provider LiveOps Inc.

“They are exciting because they … demonstrate what is possible with venture capital. These are companies that have proven a new, attractive business model that works in big spaces,” says Sharon Wienbar, managing director of Scale Venture Partners, which is not an investor in any of the six companies.

However, the six candidates are heavily funded by investors, having collectively raised about $610 million from VCs, according to Thomson Reuters (publisher of PE Week).

Solyndra leads the way, having raised $226 million from CMEA Capital, U.S. Venture Partners, Redpoint Ventures and Rockport Capital, according to Thomson Reuters.

Silver Spring is also heavily funded, having raised $167 million from Kleiner Perkins Caufield & Byers, Foundation Capital, Northgate Capital Group and Seneca Partners.

LinkedIn has raised $103 million from VCs while LiveOps has raised $50 million, Zynga has raised $44 million and Guidewire has raised $17 million.

IPO market returning

“The market is in the early stages of being back,” says LiveOps CEO Maynard Webb, who was previously COO at eBay. “The market is ripe and open today for great companies.”

Lisa Edgar, managing director at fund of funds firm Paul Capital, says it will take time for a real recovery, noting that it takes six months to prepare for an IPO.

“In this environment that is not what people have been spending time doing,” she says. “We’re still two years from real liquidity.”

But, she says, venture capitalists are encouraged by recent events, including the IPOs of VC-backed companies this year.

Overall, the average venture-backed IPO to launch in 2009 was trading at 38.1% above their offering price, as of the close of the market last Tuesday.

This includes a negative figure for LogMeIn, which has quietly sunk since its IPO. However, Bridgepoint Education, a provider of post-secondary education services, debuted in April at $10.50 a share. Last week, it was trading at more than 2x its offering price, at $21.50 a share.

Meanwhile, some companies also stand out as potential acquisition targets.

Guidewire competes successfully against enterprise software giants Oracle Corp. and SAP AG, which have broad offerings in enterprise software. Oracle has shown an appetite to buy such companies. But Guidewire is in no rush to cash out its investors. CEO John Raguin says that when they do, “We would look to the IPO markets over the next couple of years as the way to their liquidity.”

The six companies have plenty of cash coming in and are in no rush to make a deal.

Though Zynga has raised plenty of VC (backers include Kleiner Perkins, Avalon Ventures, Union Square Ventures and Foundry Group), the company has spent only $5 million, using the rest as insurance during an uncertain time. The company turned profitable within months of its launch in 2007.

Silver Spring says it considering acquisitions, but only as a buyer. Such a deal could come in the next two months, CEO Scott Lang says.

Dan Primack contributed to this report.