Slow Traffic In IT IPOs

A report by VentureOne says there were only six venture-backed IT IPOs in the first six months of this year--and that the best way for backers of IT startups to recoup their investments is to have their companies bought by bigger ones.
Backers of IT startups best recoup their investments not through initial public offerings, but by having the young companies taken over by larger companies.

From January through June, only six venture-backed U.S. IT companies completed IPOs, according to a quarterly report issued this month by VentureOne. The value of the six IT IPOs reached $505.1 million.

For the first half of 2004, there were 57 IT mergers and acquisitions, valued at $7.24 billion. In the past quarter alone, the combined value of the two biggest venture-backed acquisitions--broadband solution provider Catena Networks by Ciena Corp. and E-messaging security software maker Brightmail Inc. by Symantec Corp.--totaled $856.7 million. That's $351.6 million more than the amount the six IT IPOs raised from April through June.

The venture-backed IT companies acquired by other companies tend to be more established than those issuing IPOs, as acquiring companies seek the expertise the startups offer to add to their array of products and services. "There's definitely an increased appetite for these acquired company that are at more mature stages," says Amity Wall, VentureOne's manager of research operations.

Still, IPO activity is on the rise. During the first half of last year, only one venture-backed IT firm went public through an IPO. The six IPOs during the first half of 2004 are more than half of the 10 IPOs held last year among IT companies. IT IPOs pale when compared with those in the health-care industry. In the first half of 2004, 25 health-care concerns held IPOs, raising nearly $1.4 billion.

Among other IT acquisitions last quarter: oil and gas exploration IT solution provider GX Technology, for $150 million by Input/Output; optical data transport products manufacturer Internet Photonics, $150 million, by Ciena; storage solutions maker 3ware, $150 million, by Applied Micro Circuits; remote-management software maker OSA Technologies, $100 million, by Avocent; wireless integrator solutions developer Vytek, $92 million, by California Amplifier Inc.; and Taqua, a provider of next-generation alternative switching platforms, $85 million, by Takelec.

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