Tech, telecom help whet new appetites for IPOs

Network companies are fueling what could be the strongest technology IPO market in years, as investors look to makers of wireless, security and carrier products that have solid revenue growth and potential for big profits.

So far, 17 of the 71 U.S. IPOs in 2007 have been technology companies, according to market watcher Dealogic. Aruba Networks, BigBand Networks and other tech companies have combined to account for about 25% of the $12.3 billion worth of U.S. IPO value so far this year.

Click to see: Tech and telecom are re-engerizing the IPO market.

This year's tech IPO total has already roughly matched the number of technology IPOs in both 2002 and 2003, and is on pace to give 2004, the most active year in the last five for technology IPOs, with 52, a run for its money.

One venture capitalist says pragmatic analysis of growth potential is replacing hype – which helped inflate the telecom bubble of the late 1990s/early 2000s -- as the driver behind the resurgence in technology IPOs.

“The IPO market was closed for a while but started opening up a few years ago for relatively large companies with significant revenues,” says Ahmet Ozalp, a general partner at Atlas Venture Partners in Waltham, Mass. “The markets are starting to put more and more emphasis again on growth potential and profitability, or potential profitability. People are starting to believe in the growth stories again, and sanity and interest level is coming back to the market. People – investors -- are starting to think they can actually make money in IPOs.”

The same holds true for IT IPOs in general. Following the dot-com crash “IT companies weren’t able to sell too much of anybody until 2003; now they’re starting to move further along the maturity curve,” says John Taylor, vice president of research with the National Venture Capital Association (NVCA).

“In 2003, we saw IT sales gradually resume. It takes two, three, or four years of a [solid] track record to make a company a good candidate for IPO,” he says. “These companies are looking toward their next step in growth, which is IPO or acquisition.”

In anticipation of an IPO, venture capitalists are willing to stick with their companies a little longer now too, says Mark Heesen, president of the NVCA.

“The quarterly increase in later-stage investing may be reflective of an improving exit market as venture capitalists are now willing to invest an additional later-stage round with the hopes that an IPO or a robust acquisition is around the corner," Heesen says. (Venture funding reached a five-year high in the first quarter. Read more.).

IPO winners, losers

The latest technology IPOs haven't all been sure things, though, with some losing steam rather quickly. As of April 18, WiMAX operator Clearwire, which went public on March 7, is off 29% from its opening day closing price.

Veraz Networks, a maker of VoIP softswitches and gateways, is down 16% from its April 4 opening-day close of $7.80 per share. And Surcefire, a maker of network intrusion-detection systems that went public on March 8, is also down 16% from its first-day closing price, according to IPOhome.com.