In my blog on July 9th I talked about the recent survey focused on what worries VC's the most. Given that the answer, overwhelmingly, was "exits" (or rather, lack of them) its interesting to look at what's happened in the one month since my post.
In that period NASDAQ, the broadest indicator of tech market health, has gone from 1,756 to 1,992, or back to early October 2008 levels. That's an increase of 13% in one month. More focused tech indexes have done even better. Just as importantly it continues an improvement in the markets starting back in early March - NASDAQ bottomed at 1,268 and is now up 57% since then.
There are a surprising number of tech companies that are substantial, fast-growing, profitable (or on their way to being) yet are still private. You can see them in numerous tech segments - equipment, internet, software etc. These are the ones that need to spring loose in the public markets and now is the time to start seeing some of them do it. Filing an IPO this month means a good chance of completing the process before the holiday season and hopefully taking advantage of recent market strength.
And its starting to happen. Today, Fortinet filed their S-1. (An S-1 is the basic IPO prospectus or offering document filed with the SEC at the start of the IPO process.) They're a manufacturer of network security appliances (an "appliance" in this context is a simple, server-type box where the core functionality is in the software rather than the hardware - the hardware is simply the container, if you will) that reported over $200m in revenues last year, up about 25% over the prior year, and was slightly profitable. This is the type of low risk, solid, easy to digest IPO that will do well in this market.
Also last week Ancestry.com, an internet company, filed it's S-1. Their mission is to "help everyone discover, preserve and share their family history". Now I'm one of those sceptics who wonders how this can possibly be a big business. Apparently I'm wrong because it did $197m in revenues last year - up from $166m the year before! They're not a Valley company, and in fact they've been around in some form or another for 20 years, but they are an interesting filing to follow as an internet play.
Two other tech IPO's priced (that is, they completed the IPO process) in the U.S. last week - Avago, the Singapore-based former semiconductor group of Avaya, the HP spin off some years ago, and CDC software our of Hong Kong. Both are substantial, particularly Avago with $1.7Bn in sales last year.
More importantly, for our purposes, I hope these are the first of the next wave of tech-related IPO's that will provide exits (or will develop warchests to acquire some of the promising start-ups out there), and therefore hope for future liquidity events from today's investments, and slowly increase the confidence in funding some of the good ideas out there.
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