Google IPO Manager Sees No Return to Stock Sale Days of 1999

(Bloomberg) -- Don’t take last week’s two initial public offerings to mean it’s 1999 again.

It has been 10 months since two IPOs have happened in one week. Rosetta Stone Inc., a language-instruction software company, and Bridgepoint Education Inc., which offers college courses over the Internet, both went public last week.

The trouble is, neither of those companies come from the slowest part of the U.S. IPO market, venture capital-backed technology companies with less than $100 million in revenue. Nor did this year’s third IPO, Mead Johnson Nutrition Co., a unit of Bristol-Myers Squibb Co., which Bristol sold in February.

All three share sales involved established companies, said Lise Buyer, who helped run Google Inc.’s 2004 IPO. Rosetta Stone and Bridgepoint both have annual sales of more than $200 million. Mead Johnson Nutrition had sales of almost $3 billion in 2008.

“People are being rational: There’s no need to take unwarranted risk,” said Buyer, who now runs Portola Valley, California-based Class V Group, a consulting firm for companies preparing for IPOs. Instead, investors are buying shares of established companies, taking advantage of the 36 percent decline in the Standard & Poor’s 500 Index in the past year.

For startups, IPOs generate cash that lets them invest in new products, as well as build credibility with customers, said Gajus Worthington, chief executive officer of Fluidigm Corp., a South San Francisco, California-based biotech company.

Zero Effort

Worthington canceled his company’s IPO last September, shortly after Lehman Brothers Holdings Inc. went bankrupt, and isn’t planning to try a share sale again soon. He’s wooing corporate partners to get research money for the company’s new genetic-testing product instead.

“I’m not putting any effort now -- zero -- into anything related to an IPO,” Worthington said. “When people and institutions I met last year say they’re interested in IPOs again, I’ll believe it.”

Statistics paint the same picture.

Four companies registered to go public in the U.S. during the first quarter, compared with about 76 in the same period in 2007, according to Bloomberg data. Only 26 companies backed by venture capitalists are in pre-IPO registration with the U.S. Securities and Exchange Commission, said Mark Heesen, president of the National Venture Capital Association in Arlington, Virginia. And many companies that are registered don’t really intend to go public, Heesen said.

‘I’m Clean’

“Quite a number registered to tell potential acquirers, ‘I’ve made it through the SEC gauntlet, I’m clean, please buy me,’” Heesen said. “VCs have their heads down so much they aren’t even thinking about IPOs.”

Shareholders are conservative about what IPOs they invest in and how much they pay, Buyer said.

Bridgepoint, which opened on its first trading day at $10.50 a share on April 15, held its IPO after cutting the price from a previous range of $14 to $16.

“The issue at Bridgepoint had everything to do with price,” said Kathleen Smith, a principal at Greenwich, Connecticut-based Renaissance Capital LLC, in a Bloomberg Television interview. The firm runs an IPO-focused mutual fund. “They cut the price, which is what needed to be done.”

Bridgepoint, based in San Diego, earned $26.4 million on sales of $218.3 million last year, according to regulatory filings. At $10.50, the company was valued at about $550 million, giving it a price-to-earnings ratio of about 80.

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