OpenTable IPO's - Signs of Life?

Image by arvindgrover via Flickr

OpenTable! Its not exactly a major technology play - though it is a service I use for almost all of my own restaurant reservations. But it is a venture-backed, Silicon Valley-based startup and potential bellwether for the state of the IPO market as a whole.

Its no secret that the IPO market has been dead in the water for some time, with just 3 companies going public in the last two quarters compared to an average of 61 each quarter in the prior 3 years. With OpenTable and SolarWinds both IPO'ing this week that's a total of 7 companies so far this quarter. 

More promising than an uptick in the number of IPO's is the initial performance of these two companies in the market. OpenTable's stock was up 59% on its first day, although shedding some of those gains by the end of the week. SolarWinds was up 10% on it's first day but ended the week a little below it's initial offering price.

May sound odd to suggest that its still a promising sign when a company trades slightly below its offering price but my rationale is that it suggests the IPO was well priced by the underwriters whereas the jump in the OpenTable price is an indicator that the underwriters of that deal in fact priced the shares too cheaply. Not to digress too much but the whole point of an IPO is to provide liquidity for the company and its existing investors - and they get whatever the offering price was, not whatever it trades at afterwards. Interesting to note that 3 institutional investors in OpenTable sold shares at the IPO. Usually an underwriter doesn't like this and typically even locks in investors, employees and management to an agreement not to sell stock for six months after the IPO (a "lock-up" agreement), the rationale being that investors selling at an IPO indicates lack of confidence in the business whose shares are being sold at IPO to other investors. In this case, my guess is that these investors desperately needed the earlier liquidity for other reasons than lack of confidence in the company - but now it looks like they also left money on the (open)table!

Given the traditional importance of IPO's as a key liquidity objective of Silicon Valley companies and investors and in the overall ecosystem of the Valley, some signs of life I hope! Will be interesting to see if other companies are now encouraged to follow suit ...