Software Wrap: VC Keeps Coming, Aftermarket Still Skeptical

The venture capital investors of today may be wiser and more skeptical than the pre-April players who succumbed to dotcom madness, but they are by no means tight with a dollar. Months after the tech wreck, venture capital funds are still being shoveled into the software industry.

By Oct. 30 last year, before anyone had heard the words “dotcom disaster,” 41 venture-software companies had gone public, raising a total of $2.211 billion. And, despite the industry?s troubles in 2000, the first 10 months this year have seen 50 venture-backed software companies go public, raising $3.6568 billion. Comparing years-to-date, that is an increase of nearly 25% in the number of IPOs and of about 66% in VC funds raised.

“More and more technology is software-centric, especially with the advent of the Internet,” said Dana Serman, analyst with Lazard Freres & Co. in New York. “That may be a general phenomenon that keeps the numbers of software companies increasing.”

But the hard part seems to be wooing aftermarket investors. Most of these companies which went public over the past two years are not flaunting the astronomical share values they had in the dotcom glory days, though many are maintaining respectable values.

Onyx Software (NNM:ONXS) a software management company, priced at $13 on Feb. 11, 1999, peaked at $44, and closed Nov. 1, 2000 at $15. Kana Communications (NNM:KANA), an e-business infrastructure company, priced Sept. 21, 1999 at $15, peaked at $175.50, and closed Nov.1, 2000 at $23. Another software business, Vitria (NNM:VITR), priced Sept. 16, 1999 at $16, peaked at $106, and closed Nov. 1, 2000 at $26.

The Bad & The Ugly

Some of them, however, are doing quite dismally. Software company

Ravisent (NNM:RVST) priced Sept. 16, 1999 at $12, peaked at $52, and closed Nov. 1, 2000 at an uninspiring $3. Broadband provider Telocity (NNM:TLCT) priced March 28, 2000 at $12, peaked at $16, and closed Nov. 1, 2000 at a depressing $2. Internet appliance company Netpliance (NNM:NPLI) priced March 16, 2000 at $18, peaked at $26.13 and closed Nov. 1, 2000 at a pitiful $1.”The market doesn?t have a lot of patience with IPOs,” said Edgar P. Bierdeman, analyst with Moors & Cabot Technology in San Francisco.

“We don?t have the demand we once had to drive market prices up four or five times the offer price and hold it. We?re getting into a much more rational market.”

I Dream of Bill Gates

But the software giant Microsoft Corp. (NNM:MSFT) closed Nov. 1, 2000 at a healthy $69.88, months after surviving the software crash and years after going public. Microsoft is the star of the industry and, realistic or not, often serves as a bellwether for hopeful software investors.

“The applications look and feel so powerful and meet such a unique need,” said Serman, who added that many aftermarket investors are “dreaming of Microsoft” when they ply the market. “I think it?s just better to be skeptical in general and look at the nature of the market these companies are playing in.”