<Anybody hear about a "geocity" IPO?>
Pilot, here's an article on Internet IPOs that may be of interest to you:
Computers & Technology It's Best, Worst Of Times In Internet Firm Finance
Investors Business Daily, Tuesday, March 31, 1998 at 11:57
The investment market for Internetrelated companies in '97 looked
like a seesaw, with venture capital rising and market financing
falling.
Venture capital funds poured a record $2.6 billion into Internet
companies last year, up from $1.8 billion in '96 and $526 million in
'95, according to VentureOne Corp., a San Francisco-based industry
group.
At the same time, Internet companies raised $565 million from
IPOs, less than half the record $1.3 billion raised in the boom year
of '96, said a report by Securities Data Co., a Newark, N.J.-based
market research firm. Similarly, Internet secondary offerings also
slipped from $1.5 billion in '96 to $320 million in '97.
"Venture funds are looking at a much longer term, about five to
seven years, as opposed to individual investors who are looking for a
one- or two-year turnaround," said Larry Buchsbaum, manager of the
high-technology group for Coopers & Lybrand LLP in Boston.
But not everyone agrees on why this financing dichotomy exists.
Some say the difference is cyclical, while others maintain it's
evidence the Internet market is still far from mature.
Steve Horen, senior research analyst for NationsBanc Montgomery
Securities in San Francisco, says many private Internet companies
weren't ready to go public last year.
"It's not a lack of interest (in the Internet). It's the
incubation and maturation process (among companies) that is taking
its natural course," Horen said.
And not all venture-backed companies make it to the IPO phase.
Some get bought out or go out of business, says Lawrence Mohr Jr.,
general partner of Mohr Davidow Ventures in Menlo Park, Calif.
"It's a funnel effect downstream," Mohr said. "Only a small
number (of private companies) end up coming out and going public."
Analysts say market investment in the Internet started off slowly
in early '97 before picking up steam later in the year. EarthLink
Network Inc., a Pasadena, Calif.based Internet service provider, was
the only Internet IPO in the first quarter. It raised $26 million.
The year yielded only 14 more Internet IPOs.
Dave Crowder, managing director of NationsBanc, says investors
couldn't digest any more Web-based public offerings after buying into
a record 22 Internet IPOs in '96.
"1997 got off to a slow start because the equity markets were
slow," Crowder said.
The overall IPO market slipped from $50 billion in '96 to $43
billion in '97. Technology IPOs, in particular, fell by half, from
$8 billion in '96 to $4 billion in '97, according to Securities Data.
So what did get funded? In '97, there was no consensus among
private and public investors about which types of Internet companies
to finance. Venture funds focused primarily on software and
database- related Internet companies, while public investors sought
more familiar firms.
Venture funds dumped $1.1 billion into software and database-
related Internet companies last year, nearly double the total in '96,
according to VentureOne.
In contrast, service-oriented companies dominated the Internet IPO
market in '97. Some of the largest deals included Cupertino, Calif.-
based Concentric Network Corp., an Internet service provider, which
raised $51.6 million, and Skokie, Ill.-based Peapod Inc., an online
shopping service, which collected $64 million.
Why were the target markets so different? Analysts say venture
funds focus mostly on emerging products or markets. Market
investors, on the other hand, tend to look for what's hot right now.
"The public is looking for real revenues and a story that is
clearly understandable," says Michael Gazala, senior analyst for
Forrester Research Inc., a Cambridge, Mass.-based market research
firm.
But venture fund managers say there's no shortage of viable
opportunities. Accel Partners, a Palo Alto, Calif.-based venture
fund, was one of the leading investors in Internet-related companies
last year. Accel plunked down about $30 million in Internet
companies in '97, and expects to invest even more this year.
"There's an enormous number of opportunities that deserve
financing," said Accel general partner Jim Swartz.
So far, Accel has focused on companies developing software and
networking equipment for the Internet.
Last year, Accel's investments included Cloudscape Inc., an
Oakland, Calif.-based builder of Internet database systems with Java
software; Bright Tiger Technologies, an Acton, Mass.-based Web server
company; and iPass Inc., a Mountain View, Calif.-based software and
services company.
Similarly, Kleiner Perkins Caufield & Byers last year directed
most of its Internet-related investments into enterprise software and
communication companies.
Kleiner's Internet investments included Epiphany Marketing
Software, a Palo Alto, Calif.-based company that makes enterprise
software to transfer data through company intranets, and
AllApartments, a San Francisco-based Web site operator that helps
consumers find available apartments.
Kleiner partner Russell Siegelman says the fund prefers financing
software-related Internet companies over hardware businesses because
the capital needs are far less. "It's less than $20 million," he
said. "You can do that, and that will still give you enough time to
get to an IPO."
Despite investors' choosy habits, analysts predict a robust year
for investing in the Internet. Coopers & Lybrand's Buchsbaum
believes Internet companies will get $2.5 billion in venture
financing by year's end.
Market financing also appears to be booming. Eight Internet
companies are expected to raise up to $500 million from IPOs and
secondary offerings by mid-May, say analysts.
NationsBanc Montgomery Securities' Crowder says '98 could approach
'96 as another boom year for Internet financing.
"If the (stock) market stays healthy like it is now, it'll be at
least that good," he said. |
