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Archive for the ‘IPO news’ Category

Article from Silicon Valley Business Journal.

Institutional Venture Partners’ Steve Harrick sees a lot of opportunity in the enterprise and B2B startup space and has a $1 billion fund that was raised last year to work with.

His Menlo Park firm focuses on later-stage venture and growth equity investments, so it’s not the small fry they have their eyes on.

IVP is looking for startups that already have $20 million to $30 million in revenue and the potential to grow that by tenfold or more.

The firm had several big exits last year, including the $223 million IPO of CafePress and the $745 million sale of Buddy Media to Salesforce.

Harrick took some time to speak to me this week about the startups that are exciting him today and why IVP often remains an investor long after a startup has gone public.

Here are excerpts from that conversation:

There has been a lot said about a shift away from social and consumer-focused startups since Facebook’s IPO last year. What does that mean at Instiutional Venture Partners?

IVP has always invested in enterprise companies and we’ve been investing since 1980. We’re on our 14th fund, IVP-14. It’s a billion-dollar fund and we’re just beginning to invest that.

But enterprise has always been a mainstay of our investment effort. It ebbs and flows with budgets and where we see growth. But right now we’re seeing a lot of good activity in the enterprise space, a lot of innovation being brought to bear and the opportunity for new high-growth companies. So we’re actively investing there.

Can you tell me a little bit about the companies that are exciting to you right now from your portfolio?

There are a number of them. The most recent investment was AppDynamics. AppDynamics does application performance management. It’s really a very exciting area. The company allows anybody that’s creating an application to bug test it, to test it for security, to see if it can support high volume loads, all while they are designing the application.

The reason that this is such an interesting space is that every enterprise has applications that reach out to customers that they use internally and that they connect to partners with. It’s a real competitive edge for companies that do it correctly.

All the old stuff doesn’t support mobile. It doesn’t support the latest programming techniques. It’s long in the tooth. The market has been desperate for a more modern solution and AppDynamics really delivers that. We were really impressed with the growth the company has shown and just the massive demand for the product offering.

A lot of our portfolio companies were already using AppDynamics. That’s how we found out about the company and it’s a space that right now is at about $ 2 billion market size. It’s growing and it’s a very good management team. So we’re excited to be part of it.

Another one I understand you invested in last year is Aerohive.

Oh, yeah. David Flynn is the CEO over there. It’s a great company to watch in Sunnyvale. It’s a next generation Wi-Fi company. What Aerohive did very early on is it realized that a controller can be costly and also is a choke point for an enterprise deployment. If your controller goes down, you can’t change configurations. A lot of the old vendors had built a lot of cost around the controllers, which increased the cost of deployment for a customer.

Aerohive took that controller and put it in the cloud. You can manage your Wi-Fi deployments remotely from any computer. It doesn’t go down and their Wi-Fi deployments are enormously successful at scale. They’ve got a lot of enterprise and education and government customers. It’s a business that more than doubled last year and really one to watch going forward.

Are you finding a lot more company these days looking at the enterprise and B2B space than there were a couple of years ago?

Enterprise budgets have come back. People are recognizing that they have to refresh their technologies. They’ve got a lot of new demands in terms of supporting new trends in the enterprise.

Take another one of our companies for example, MobileIron. It is a software company that solves the bring-your-own-device problem for businesses. People are bringing iPhones and Android phones into the enterprise and they’re viewing enterprise information. They’re putting things in a Dropbox account and they’re leaving with it.

IT can’t control that and that is a big problem, particularly when you want to maintain rights and provisioning and state-of-the-art security and be able to track confidential information.

So MobileIron’s products allow you to do all that. It allows you to push out patches, security, rules and provisioning. It allows you to take control of a mobile environment in the enterprise.

Five, six, seven years ago, this wasn’t a problem. It just wasn’t happening. Now, it is and it is being driven by consumer behavior that has flown over to the enterprise.

So people are saying, I have a budget for this. I have to spend. We have to be on top of these issues or it’s going to be a big problem for us.

You know those kinds of trends are really unstoppable.

Are there other trends you are watching?

Another is Wi-Fi, which is being kind of taken for granted, how to be able to connect if I’m visiting your company or I’m in your auditorium or I’m having lunch in your corporate cafeteria. These are all things you need to have infrastructure for. You need to do it cost effectively. So these fund-smart entrepreneurs are seeing an opportunity and people are spending for it.

As a venture capitalist, we look for those tailwinds in terms of budget because that allows you to grow. It accelerates the sale cycle. It becomes less of a missionary sale and that’s how you have rapid growth in businesses. It is different from five or six years ago. There are a lot of people paying attention to it.

There is a lot said about the consumerization of IT, the trend where shifts in consumer technology is requiring IT departments and enterprises to change how they do things.

It’s a massive change in behavior. Enterprises are organizations that are comprised of employees that have jobs to do. Their behaviors change and the enterprises have to change with them.

There is also a lot of talks about what is being described as Network 2.0, involving things like software-controlled networking and flash storage. Are you guys involved in that at all?

On the network side, a lot of that is cloud computing and services around the data center. We are involved in that.

We invest in a company called Eucalyptus Systems, which is the leader in hybrid cloud deployment. They allow you to manage and test software on your own premises and switch seamlessly back and forth between Eucalyptus and the Amazon Cloud.

Cloud computing is still an area where people are trying to figure out exactly what their needs and specs are. It’s still early in the market. But there have been some large successes that have kind of changed behavior.

Salesforce is one of those. Salesforce is widely deployed. It really took customer relationship management and managing your sales force to the cloud. They’ve offered additional cloud applications and people have gotten used to paying by subscription.

That’s also a change from seven or eight years ago, when everything was license dominated. The old world was you paid for licensing and maintenance, 80-20. That was what you paid.

Those are perpetual licenses and they were often expensive. Sometimes, they were underutilized or never deployed and the world gradually shifted to paying on subscription.

Customers like it because they say, hey, if I’m not using it, I can turn it off. I don’t have to renew.

The vendors like it because it’s a more predictable revenue stream. You’re no longer biting your nails at the end of each quarter to figure out if you’re going to get those two or three deals that are going to make or break your quarter.

You get a lot of smaller deals that recognize revenue monthly and that provide a more predictable business and that have been a reward in the public markets. Networking and application functionality is being delivered that way now. The economics have changed and I think that is a very exciting trend. I think it leads to more sane management for software businesses.

How about the security? Are you into that at all?

We are. We were investors in ArcSight, which Hewlett-Packard bought. That was an example of a dashboard for enterprise security.

We’ve been involved with a number of other security companies. I think two to watch are Palo Alto Networks and FireEye. We aren’t investors in either of those, but they’re both very good companies. We’re looking at a lot of security companies currently.

The challenge with security is that it can often be a point solution and a small market. To be a standalone security company, you really have to have a differentiated broad horizontal functionality that could stand on its own.

You can’t have customers saying, I want that, but it’s a feature and should be delivered with a bunch of other things. A lot of small companies fall into that trap in security.

So we’re on the lookout for the broader security places that you know really can get the $50 million, $75 million or $100 million revenue.

Have there been any companies that you passed on that you wished maybe in retrospect you hadn’t? The ones that got away?

Yeah, you know, there always are. That would be the anti-portfolio. You run into those things and you try to see what you learn from it. Sometimes, they’re very hard to anticipate.

We passed on Fusion-io, the Salt Lake, Utah, flash drive memory company. They have done well, but I think they have fallen off recently in the public markets. That one would be in the anti-portfolio.

We also looked at Meraki. Cisco bought them for $1.2 billion, more than 10 times revenue. It’s hard to predict when somebody’s going to buy a company at that kind of multiple. We believe Aerohive is the superior company. That’s why we invested in Aerohive instead of Meraki. You can’t really invest in both. They’re competitors.

Then there was Yammer, which was acquired for $1.2 billion. That was also a company we were familiar with, good technology acquired for huge multiple of sales and it was hard to predict that happening, too. So I wish all those guys well. Sometimes you miss on big returns like thoses, but we like the investments that we have made.

What is it that you’re looking for at the top of your list when you’re considering a company that you might invest in?

Well, you know, the old adages in venture capital have some merit in them. But things change and you can’t rely too much on just pattern recognition. There’s always seismic shifts in technology where old assumptions have been disproven. You have to adapt to those.

But the adages that do hold are quality of management. We really look for companies and management teams that can take a company to $50 million to $500 million in revenue.

That’s a very mature skill set. They have to show the ability to hire, the ability to supplement the businesses, to attract great board members and to build a company that can be public.

There are a lot of demands on being public today. The industry is still dominated by mergers and acquisitions, as it always has been, for exits. Probably about 80 percent of the exits happen from M&A.

But we really look to exceptional management teams that we can be in business with for many, many years.

How does being a later stage investor change what you are looking for?

We have a long-time horizon for investment. We often hold after a company goes public and even invest in the company after it’s gone public. That’s in our charter.

So we really look for these management teams that are really exceptional and deep.

As a late stage investor, you can’t really invest in small market opportunities. The early stage can do that, and they can exit nicely. You know they can invest $10 million valuation, the company sells for $60 million and they do great.

When you’re investing at a later stage, you know looking for companies that have $20 million or $30 million of revenue so the valuation is higher and you have to get these companies to a higher exit value to get a great return.

So you have to able to identify large market opportunities and AppDynamics, Aerohive, MobileIron, Spiceworks, all have really large market opportunities. That’s why we’re excited about them.

Interviewer: Tell me a little bit more about the philosophy of holding on to companies after they’ve gone public.

Our perspective is that going public is a financing event. It’s also a branding event for a company. It raises awareness. It creates liquidity in the stock.

But valuations fluctuate with market conditions. We say this is just the beginning of growth. That valuation that it’s at now may not be the right place to exit .

If you look back historically, venture capitalism left a lot of money on the table by exiting companies prematurely. You know if you exited when Microsoft or Apple or Cisco went public, you probably left a 10X, 20X, or 50X return on the table by doing so.

Obviously, that requires a lot of judgment. Not every company is going to be an Apple or a Cisco.

So that’s a judgment call and when we make the judgment that there’s a lot of growth ahead and the current valuation doesn’t reflect that, we’re happy holders. We establish price targets for exit and when it reaches that price target, we make a new assessment.

We do have to exit eventually, but we raise 10-year funds and our holding period is typically 3 to 5 years and then oftentimes its 5, 7, 8 years.

Is there a specific example to illustrate this from your portfolio?

Sure. One would be HomeAway. HomeAway is a remarkable business. People list homes on the website. If you’re traveling with your two kids, you get a home for 800 bucks for the week and you would’ve paid 500 bucks a night for a hotel. It’s a great service. It’s public. We invested, my gosh, about five years ago and we’re still holding that stock.

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Article from SFGate.

It’s suddenly a lot harder for venture capitalists and startups to raise funds, as investors fed up with low returns turn their backs on the sector.

Most industry observers agree that lots of young firms will simply not be able to raise their next round of funding, commencing a period of belt tightening, consolidation and closures. At a minimum, it seems to mark the beginning of a more level-headed investment climate in Silicon Valley, after years of insatiable lust for all things mobile and social.

But if the drop-off is too sudden and steep, this new austerity could spill over into an economy highly dependent on the tech sector. Indeed, as The Chronicle reported last week, the industry has an enormous impact, with each tech job creating 4.3 indirect jobs in the community, according to a Bay Area Council Economic Institute report.

The investors and venture capitalists I spoke to insisted that we’re not on the verge of anything like the dot-com meltdown, characterizing the shift as a minor and healthy correction, or a “rationalization.” One suggested it was little more than the usual process of separating good and bad ideas in the marketplace.

But the numbers suggest something new is afoot. In the third quarter, the amount that U.S. companies raised in venture capital dropped 32 percent from the prior year, according to Dow Jones VentureSource. Venture capital funds themselves raised 17 percent fewer dollars from the second to third quarter, even as the number of funds grew, according to a joint report from Thomson Reuters and the National Venture Capital Association.

Economic uncertainty

Some partially blame the economic uncertainty surrounding the outcome of the election and the “fiscal cliff.” But the main problem seems to be that many of the “limited partners” that fund venture capital are pulling back after years of frustration.

Ever since a brief period in the late 1990s when venture capital burned bright, the industry has been delivering consistently weak returns on the whole.

In fact, despite requiring greater risks and larger capital outlays, venture capital has been underperforming the stock market over the past decade, according to a report this year by the Ewing Marion Kauffman Foundation.

Joe Dear, chief investment officer for CalPERS, told Reuters this summer that venture capital “has been the most disappointing asset class over the past 10 years as far as returns.” The huge pension fund for California’s public employees didn’t return repeated calls from The Chronicle.

Investment horizons have steadily spread out, from five to 10 to sometimes 15 years, as exit opportunities like acquisitions and initial public offerings fail to materialize. This has sometimes forced investors to put in more money to protect their initial funds.

‘Pretty grumpy’

“The industry definitely, for the last decade, has been a tough place to be,” said Ray Rothrock of Palo Alto venture capital firm Venrock. “We’re all pretty grumpy right now.”

Some of this is due to macroeconomic conditions outside the control of venture capitalists, notably the housing and banking crises. But at least some of it has to do with poor picks and herd mentality, funding companies with few real prospects and driving up the entry price for legitimately promising companies beyond what they could pay off.

“The market overfunded the number of companies in the system,” said Hans Swildens, founder of Industry Ventures in San Francisco. “There’s a glut.”

Even the grand promise of Web 2.0 companies that lured so much recent money hasn’t generated the hoped-for returns. The ones that managed to go public were often disappointments, including Facebook, Zynga and Groupon, in some cases leaving late-stage investors underwater on their holdings.

That was a final straw for some.

Last week, Forbes dug up figures from CB Insights that highlighted a wide and growing gap between the number of companies that raised initial funding and companies securing the follow-on investments, known as a Series A, generally necessary to keep going. This year, there have been 1,747 seed or angel rounds but only 688 Series A deals, underscoring the coming crunch.

Bad businesses

Based on as scientific a survey as the PR pitches in my inbox, there’s a tremendous number of silly, redundant and poorly executed companies out there that don’t warrant additional funding. The real problem isn’t that many of these companies won’t raise more money; it’s that they raised money in the first place.

For the venture capital industry to get back on track, it needs to embrace a renewed sense of discipline – on company picks, deal terms and total spending.

But hope springs eternal in Silicon Valley.

Rothrock stresses that the industry’s trend-line averages mask very strong results and ongoing investment at top firms, as well as growing venture capital activity among corporations like Google. Companies are just being more selective and looking beyond consumer Internet opportunities.

“We’re steady as she goes in terms of funding enterprise,” he said.

Secondary opportunity

Swildens oversees a secondary fund that buys shares from limited partners and venture firms looking to liquidate part of their holdings. He sees this period as a ripe opportunity for bold investors to get into promising companies at suddenly reasonable rates.

“Ours is one of the few firms aggressively putting money into these funds,” he said.

Mark Heesen, president of National Venture Capital Association, is similarly optimistic. He says the industry could be primed for a strong comeback in 2013, as long as the broader economy strengthens.

Above all, what the industry needs are some wins – acquisitions or initial public offerings that put investors clearly in the black and start to restore some lost confidence.

“If we see these exit markets start to generate good returns, I think you’ll see limited partners look at this asset class again,” he said.

James Temple is a San Francisco Chronicle columnist. E-mail: jtemple@sfchronicle.com Twitter: @jtemple

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Article from GigaOm.

Chinese auto tech behemoth Wanxiang has won the bidding process in an auction to buy the assets of bankrupt battery maker A123 Systems. On Sunday the companies announced that Wanxiang plans to acquire most of the assets of A123 for $256.6 million. It’s news that could be a bit controversial, given A123 received a $132 million grant from the U.S. government, and could now be owned by a Chinese company.

The winning bid beat out Johnson Control’s bid to acquire A123′s automotive division. Johnson Controls previously had offered to buy the automotive division and two factories for $125 million.

One of the reasons Wanxiang’s offer to buy up A123 had been controversial was because A123 had some U.S. military contracts, which critics didn’t want to see in the hands of a Chinese company. But A123 decided to sell off its government business, including all its U.S. military contracts, to Illinois-based company Navitas Systems, for $2.25 million. Wanxiang acquired the rest of the assets including the grid storage business.

We’ll see if that move silences politician critics like U.S. Sens. John Thune (R-S.D.) and Charles E. Grassley (R-Iowa). The deal still has to be approved by the bankruptcy court as well as the Committee for Foreign Investment in the United States (CIFIUS).

If approved, the future of A123 System’s lithium ion battery tech will fittingly be owned by a Chinese auto giant, as China is increasingly becoming one of the most important markets for electric vehicles. Money from Chinese investors, conglomerates, cities and the government, continues to drive a significant amount of the future of next-generation electric car technology.

The deal also provides a future for A123′s technology, which had a promising beginning, but had suffered a series of setbacks in 2012. Venture-backed A123 held the largest IPO in 2009, raising some $371 million, and was trading at over $20 per share when it started trading. A123 also raised more than $350 million from private investors when it was still a startup.

Yet in recent months, it suffered from manufacturing problems, and also had only a handful of customers for its premium batteries. The company had been losing boat loads of money for years.

The Wanxiang deal still won’t make back enough to cover its debts. A123 says:

Because the total purchase price for A123’s assets would be less than the total amount owed to creditors, the Company does not anticipate any recoveries for its current shareholders and believes its stock to have no value.

Now that the A123 bankruptcy is moving forward, it will be interesting to see what Fisker Automotive, one of A123′s prime customers, will do. Fisker had told the media that it is waiting for the results of the A123 auction before it starts back up assembling its Karma cars.

This isn’t Wanxiang’s first cleantech and clean energy acquisition — it’s actually its fifth in 2012, says the company in a release. Wanxiang has been aggressively acquiring under valued American cleantech and clean energy companies.

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Article from NYTimes.

Few investors have ridden the recent Internet boomlet like the GSV Capital Corporation.

After GSV announced in June 2011 that it was buying a stake in the privately held Facebook, the closed-end mutual fund surged 42 percent that day. Capitalizing on the euphoria, GSV sold another $247 million of its shares, using the money to expand its portfolio of hot start-ups like Groupon and Zynga.

Now, GSV is feeling the Facebook blues.

When the public offering of the social network flopped, GSV fell hard, and it still has not recovered. Shares of GSV, which were sold for an average of $15.35, are trading at $8.54.

“We probably benefited from our stake in Facebook more than we deserved on the way up,” said GSV’s chief executive, Michael T. Moe, “and were certainly punished more than we deserved on the way down.”

GSV, short for Global Silicon Valley, is the largest of several closed-end mutual funds that offer ordinary investors a chance to own stakes in privately held companies, at least indirectly. Closed-end funds like GSV typically sell a set number of shares, and their managers invest the proceeds. In essence, such portfolios operate like small venture capital funds, taking stakes in start-ups and betting they will turn a profit if the companies are sold or go public.

“I think GSV was really innovative in creating a kind of publicly traded venture capital fund,” said Jason Jones, founder of HighStep Capital, which also invests in private companies.

But the shares of closed-end funds trade on investor demand – and can go significantly higher or lower than the value of the underlying portfolios. The entire category has been hit by Facebook’s troubles, with GSV trading at a 38 percent discount to its so-called net asset value.

Mr. Moe, 49, has previously experienced the wild ups and downs of popular stocks.

A backup quarterback at the University of Minnesota, he started out as a stockbroker at the Minneapolis-based Dain Bosworth, where he wrote a stock-market newsletter called “Mike Moe’s Market Minutes.” He met the chief executive of Starbucks, Howard Schultz, on a visit to Seattle in 1992, and he began covering the coffee chain after its initial public offering.

“I left believing I had just met the next Ray Kroc,” Mr. Moe wrote in his 2006 book, “Finding the Next Starbucks,” referring to the executive who built the McDonald’s empire.

After stints at two other brokerage firms, Mr. Moe became the director of global growth research in San Francisco at Merrill Lynch in 1998. There he ran a group of a dozen analysts at a time when mere business models “were going public at billion-dollar valuations,” he said.

Shortly after the dot-com bubble burst, he founded a banking boutique now called ThinkEquity. At the time, he expected the I.P.O. market to shrug off the weakness and recover in a couple of years. Instead, it went into a decade-long slump.

“Market timing is not my best skill,” Mr. Moe said. In 2007, he sold ThinkEquity.

The next year, he started a new firm to provide research on private companies, NeXt Up Research. He later expanded into asset management, eventually changing the name to GSV. Within two months of starting his own fund, he bought the shares in Facebook through SecondMarket, a marketplace for private shares.

GSV soon raised additional funds from investors and put the money into start-ups in education, cloud computing, Internet commerce, social media and clean technology. Along with Groupon and Zynga, he bought Twitter, Gilt Groupe and Spotify Technology. The goal is finding “the fastest-growing companies in the world,” he said.

But Mr. Moe has paid a high price, picking up several start-ups at high valuations on the private market. He bought Facebook at $29.92 a share. That stock is now trading at $19.10. He purchased Groupon in August 2011 for $26.61 a share, well above its eventual public offering price of $20. It currently sells at $4.31.

Max Wolff, who tracks pre-I.P.O. stocks at GreenCrest Capital Management, said GSV sometimes bought “popular names to please investors.”

“This is such a sentiment-sensitive space, the stocks don’t trade on fundamentals,” Mr. Wolff said, adding, “If there’s a loss of faith, they fall without a net.”

GSV’s peers have also struggled. Firsthand Technology Value Fund, which owns stakes in Facebook and solar power businesses like SolarCity and Intevac, is off 65 percent from its peak in April. “We paid too much” for Facebook, said Firsthand’s chief executive, Kevin Landis.

Two other funds with similar strategies have sidestepped the bulk of the pain. Harris & Harris Group owns 32 companies in microscale technology. Keating Capital, with $75 million in assets, owns pieces of 20 venture-backed companies. But neither Harris nor Keating owns Facebook, Groupon or Zynga, so shares in those companies have not fallen as steeply.

GSV is now dealing with the fallout.

In a conference call in August, Mr. Moe was confronted by one investor who said, “the recent public positions have been a disaster,” according to a transcript on Seeking Alpha, a stock market news Web site. While Mr. Moe expressed similar disappointment, he emphasized the companies’ fundamentals. Collectively, he said, their revenue was growing by more than 100 percent.

“We have been around this for quite some time, and we are going to be wrong from time to time,” Mr. Moe said in the call. “But we are focused on the batting average.”

In the same call, Mr. Moe remained enthusiastic – if not hyperbolic – about the group’s prospects. Many of GSV’s 40 holdings are in “game-changing companies” with the potential to drive outsize growth, he told the investors.

Twitter, the largest, “continues to just be a rocket ship in terms of growth, and we think value creation,” he said. The data analysis provider Palantir Technologies helps the Central Intelligence Agency “track terrorists and bad guys all over the world.” The flash memory maker Violin Memory “is experiencing hyper-growth,” he wrote in an e-mail.

But Mr. Moe was a bit more muted in recent interviews. While he says he still believes in giving public investors access to private company stocks, he recognizes the cloud over GSV. “We unfortunately have a social media segment that got tainted. I completely get why our stock is where it is. It’s going to be a show-me situation for a while.”

Acknowledging some regrets, Mr. Moe said he was angriest about overpaying for Groupon, saying, “Yeah, I blew Groupon.” He said that he also did not anticipate what he called a deceleration in Facebook’s growth rate, and that it was “kind of infuriating” that some of its early investors were allowed to exit before others. GSV often must hold its shares until six months after a public offering.

But the downturn in pre-I.P.O. shares has a silver lining, Mr. Moe said. Since the Facebook public offering, he has been able to put money to work “at better prices.” He recently bought shares of Spotify at a valuation of about $3 billion, roughly 25 percent below the target in its latest round of financing.

The I.P.O. market is also showing signs of life, he said, with the strong debuts of Palo Alto Networks and Kayak Software. And he still has faith in Facebook.

Whatever its current stock price, at least it is a “real company” with revenue and profit, Mr. Moe said, adding, “It’s not being valued off eyeballs and fairy dust.”

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Article from NYTimes.

 

Institutional Venture Partners has another billion to play with.

The venture capital firm, an investor in Twitter, Zynga and LivingSocial, has raised $1 billion for I.V.P. XIV, its 14th and largest fund to date.

According to a partner, Sandy Miller, the firm initially set a $750 million target but increased it on robust demand. The fund, which was raised over four months, relied mainly on capital from previous investors.

Unlike some of its peers, Institutional Venture Partners does not write a lot of checks, usually not more than a dozen a year. As a later-stage investment firm, it invests $10 million to $100 million in seasoned start-ups in three main buckets: Internet, enterprise technology and mobile.

“I hate to sound dull but we’re doing the same strategy,” Mr. Miller said.

Mr. Miller, a longtime technology investor and co-founder of Thomas Weisel Partners, is optimistic despite recent setbacks in the technology sector.

Skepticism in the public markets, most recently highlighted by Facebook‘s underwhelming initial public offering, has damped enthusiasm for some late-stage start-ups. Zynga, for instance, an Institutional Venture Partners portfolio company, has tumbled more than 44 percent since its debut last year. And plenty of experts question whether another start-up it has backed, LivingSocial, is worth such a high valuation after Groupon, its far bigger rival, has fallen about 50 percent since its I.P.O.

Mr. Miller acknowledges that some valuations may pull back, but he says he invests for the long term.

“I’ve watched the technology market over a 30-year period,” he said. “There’s more interesting, high quality companies today than there has ever been and by a very wide margin.”

He added, “In every market, most deals don’t make sense, and that’s true now, but that’s always been true.”

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Article by Om Malik @ GigaOm.

This is going to be a busy weekend for me. While the weather in San Francisco threatens to be “summer-like,” I am going to be sitting at home and preparing for our Structure 2012 conference. Nevertheless here are seven stories that might be worth reading this weekend.

Read more here.

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Article from NYTimes.

Facebook shares will be tempting to buy when they start trading on Friday. The company has hefty profit margins, a household name and a shot at becoming the primary gateway to the Internet for much of the planet.

But if history offers any lesson, average investors face steep odds if they hope to make big money in a much-hyped stock like Facebook.

Sure, Facebook could be the next Google, whose shares now trade at more than six times their offering price. But it could also suffer the fate of Zynga, Groupon, Pandora and a host of other start-ups that came out of the gate strong, then quickly fell back.

Even after Facebook supersized its offering with plans to dole out more shares to the public, most retail investors will have a hard time getting shares in the social networking company at a reasonable price in its first days of trading.

Facebook’s I.P.O. values the company at more than $104 billion. And the mania surrounding the offering means Facebook shares will almost certainly rise on the first day of trading on Friday, the so-called one-day pop that is common for Internet offerings. At either level, Facebook’s price is likely to assume a growth rate that few companies have managed to sustain.

New investors, in part, are buying their shares from current owners who are taking some of their money off the table, a sign that the easy profits may have been made. Goldman Sachs, the PayPal co-founder Peter Thiel, and the venture capital firms DST Global and Accel Partners are all selling shares in the offering.

“It is a popular company, but it is still a highly speculative stock,” said Paul Brigandi, a senior vice president with the fund manager Direxion. “Outside investors should be cautious. It doesn’t fit into everyone’s risk profile.”

For the farsighted and deep-pocketed investors who got in early, Facebook is turning out to be a blockbuster. But by the time the first shares are publicly traded, new investors will be starting at a significant disadvantage.

Following the traditional Wall Street model, Facebook shares were parceled out to a select group of investors at an offering run by the company’s bankers on Thursday evening, priced at $38 a share. But public trading will begin with an auction on the Nasdaq exchange on Friday morning that is likely to push the stock far above beyond the initial offering price.

That is what happened to Groupon last fall. Shares of the daily deals site started trading at $28, above its offering price of $20. It eventually closed the day at $26.11.

The one-day pop is common phenomenon. Over the last year, newly public technology stocks, on average, have jumped 26 percent in their first day of trading, according to data collected by Jay R. Ritter, a professor of finance and an I.P.O. expert at the University of Florida.

In many of the hottest technology stocks, the rise has been more dramatic. LinkedIn, another social networking site, surged 109 percent on its first day in May 2011, and analysts say it is not hard to imagine a similar outcome with Facebook, given the enormous interest.

Unfortunately for investors, the first-day frenzy is not often sustained. In the technology bubble of the late 1990s, dozens of companies, Pets.com and Webvan among them, soared before crashing down.

At the height of the bubble in 2000, the average technology stock rose 87 percent on its first day. Three years later, those stocks were down 59 percent from their first-day closing prices and 38 percent from their offering prices, according to Professor Ritter’s data.

The more recent crop of technology start-ups has not been much more successful in maintaining the early excitement. A Morningstar analysis of the seven most prominent technology I.P.O.’s of the last year showed that after their stock prices jumped an average of 47 percent on the first day of trading, they were down 11 percent from their offering prices a month later. Groupon is now down about 40 percent from its I.P.O. price.

“It’s usually best to wait a few weeks to let the excitement wear off,” said James Krapfel, an I.P.O. analyst at Morningstar who conducted the analysis. “Buying in the first day is not generally a good strategy for making money.”

There are, of course, a number of major exceptions to this larger trend that would seem to provide hope for Facebook. Google, for instance, started rising on its first day and almost never looked back.

Even among the success stories, though, investors often have had to go through roller coaster rides on their way up. Amazon, for instance, surged when it went public in 1997 at $18 a share. But the stock soon sputtered, and it did not reach its early highs again until over a decade later. The shares now trade near $225.

More recently, LinkedIn has been trading about 140 percent above its offering price of $45, enough to provide positive returns even for investors who bought in the initial euphoria. But those investors had to sweat out months when LinkedIn stock was significantly down.

Apple is perhaps the clearest example of the patience that can be required to cash in on technology stocks. Nearly two decades after its I.P.O. in 1980, it was still occasionally trading below its first-day closing price, and it was only in the middle of the last decade — when the company began revolutionizing the music business — that it began its swift climb toward $600.

Facebook’s prospects will ultimately depend on the company’s ability to fulfill its early promise. It has a leg up on the start-ups of the late 1990s, which had no profits and dubious business models. Last year, in the seventh year since its founding, Facebook posted $3.7 billion in revenue and $1 billion in profit.

But investors buying the stock even at the offering price are assuming enormous future growth. While stock investors are generally willing to pay about $14 for every dollar of profit from the average company in the Standard & Poor’s 500 index, people buying Facebook at the estimate I.P.O. price are paying about $100 for each dollar of profit it made in the past year.

When Google went public in 2004, investors paid a bigger premium, about $120 for each dollar of earnings. But the search company at the time was growing both its sales and profits at a faster pace than Facebook is currently.

Facebook may be able to justify those valuations if it can keep expanding its profit at the pace it did last year, a feat some analysts have said is possible. But especially after the company recently revealed that its growth rate had slowed significantly in the first quarter, the number of doubters is growing.

“Facebook, by just about any measure, is a great company,” Professor Ritter said. “That doesn’t mean that Facebook will be a great investment.”

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