Stormy weather for tech IPOs

Computerworld - With IPO values dropping like summer hailstones in a thunderstorm, it was no surprise last week when handheld device maker Handspring Inc. dropped its initial public offering share prices for the second time in two months.

Other companies are retreating from the public market completely. Two dozen companies pulled their IPOs in May, more than in January, February and March combined, according to the National Venture Capital Association (NVCA).

But there's no reason to think that the IPO decline -- and the sharp drop off in the money IPOs raise -- will cause significant problems for technology development in this country.

For example, the story behind Mountain View, Calif-based Handspring's action wasn't necessarily bad. Jill House, a senior analyst at International Data Corp. in Framingham, Mass., said that rather than reacting to a poor IPO reception, the company appears to be strategically offering its stock at more modest prices to bring in more investors.

Equally important for U.S. technology users, venture capitalists will continue to invest in new companies even without the hope of an immediate IPO jackpot, said NVCA spokeswoman Jeanne Lazarus.

"Venture capitalists are long-term investors," she said. "But there is a sense right now to maybe hold on to an investment a little longer, make sure it's mature enough and developed enough to handle a turbulent IPO market environment."

Computer companies and communications firms remain the most attractive to venture capitalists, according to a report from the NVCA, with computer companies receiving $12.4 billion and communications companies receiving $6.02 billion this quarter.

Mark Opel, chief operating officer at New York-based business financing company Capital.com, said he doesn't expect the technology venture capital pipeline to be affected by market volatility.

"All deals are now subjected to more scrutiny than they were a few months ago," he said. "But the good deals and the good ideas that come out of the scrutiny continue to get funded. There are lots of folks talking about directing resources to infrastructure, and that's a trend that's likely to continue."

Venture capitalists are traditionally more interested in infrastructure than in retail, said Jesse Reyes, vice president of Newark, N.J.-based venture capital research firm Venture Economics. Last year's venture capitalist mania for consumer e-commerce firms was an aberration.

"They got seduced by the dark side," he said. "Now it's moving back upstream to more of the technology facilitation and infrastructure, rather than the content at the other end of the pipeline. It's a move toward something they're a lot more comfortable with."

And venture capitalistscontinue to make significant profits from key investments. For example, Handspring's amended filing with the Securities and Exchange Commission says it will raise $190 million before expenses by selling 10 million shares, or a mere 8% stake of the company, giving venture capital investors Kleiner Perkins Caufield & Byers and Benchmark Capital significant returns, analysts said.

Related stories:

• Handspring takes retail plunge with handheld, March 28, 2000
  
• Vendors, venture capitalists vie for stakes in start-ups, February 11, 2000