Summer bodes well for VC-backed IPOs

Venture capitalists are heading into the summer with hopes that public market liquidity options will heat up with the weather.

On the heels of a comparatively strong May showing for venture-backed IPOs, the new issue pipeline promises to deliver a robust lineup over the next several months, with offerings in such hot sectors as solar power, optical networking and Internet services.

Provided the broader markets continue posting gains, IPO investors “are in for a nice, long run,” says John Fitzgibbon, founder of This month, if remaining planned IPOs make it out on schedule, “we could end up having the busiest May since 2000,” he said.

Venture capitalists are benefiting from the bump in new offerings. So far this year, 32 venture-backed companies have launched IPOs on U.S. exchanges, compared to 20 in the same period a year ago, according to Thomson Financial (publisher of PE Week). May was particularly showered with new issues as 10 venture-backed companies went public.

Some of those companies performed exceptionally well, too. Shares of EnerNOC (Nasdaq: ENOC), a developer of energy management technology, jumped 20% in first-day trading on May 18 when the stock debuted at $26 a share. Its share price closed last Thursday after regular trading at $35, a jump of nearly 40% from the IPO. EnerNOC raised about $28 million in several rounds from such backers as Braemar Energy Ventures, Draper Fisher Jurvetson and Foundation Capital.

Meanwhile, Cavium Networks (Nasdaq: CAVM), a developer of integrated semiconductor products, saw its shares rise 22% to $16.45 in first-day trading. Shares of the company closed last Thursday at $18.85, about 40% above its IPO price of $13.50 a share. The company raised about $68 million from Alliance Ventures, Beachhead Capital, Diamondhead Ventures, Menlo Ventures, NeoCarta Ventures and Rembrandt Venture Partners.

Indeed, last week rounded out a productive month for market debuts, with IPOs from private equity-backed Greenlight Capital Re, Helicos Biosciences and RSC Holdings. Clean Energy Fuels, an operator of natural gas fueling stations, was slated to begin trading last Friday (after PE Week‘s deadline to go to press) in an offering expected to raise up to $170 million.

New VC-funded issues on the IPO launching pad include photovoltaic equipment maker GT Solar, data center software developer BladeLogic, Internet content deliver company Limelight Networks, and optical networking innovator Infinera.

But while the IPO outlook may be improving, it’s still a tough market, says Drew Lanza, a partner at Morgenthaler Ventures.

Though admittedly the overheated IPO environment of 1999 and 2000 was an anomaly, Lanza says, markets have not snapped back to their pre-bubble levels. The current climate for smaller venture-backed startups compares unfavorably to the 1990s, he says, when more than 100 VC-funded companies carried out IPOs in an average year.

That said, venture capitalists are on track for one of the better IPO return records in recent years. VC-funded companies have raised $5.15 billion in IPOs on U.S. exchanges so far this year, according to Thomson Financial. That’s more than what was raised in 2006 and 2005, during which VC-backed IPOs brought in $5.12 billion and $4.45 billion, respectively.

Fitzgibbon, however, sees the pickup in offerings as a likely indicator of a broader recovery in the IPO market.

“We’ve had enough time, about four-and-a-half years, for the agony of the Internet bubble to evaporate,” he says.