Two Technology Offerings Find Favor on Wall Street

SAN FRANCISCO — The dry spell in initial public offerings for venture-backed technology companies may be over. This week, two of those companies went public: OpenTable, the online restaurant reservation service, and SolarWinds, which makes network management software.Investors gave both of them warm receptions. Shares of OpenTable, which began trading Thursday on Nasdaq, were originally priced at $20 and jumped 60 percent to close at $31.89. Shares of SolarWinds, which began trading Wednesday on the New York Stock Exchange, closed Thursday at $13.79, 10 percent above their offering price of $12.50.

The offerings could unclog the “moldy I.P.O. pipeline,” where some companies have been languishing for more than a year, said Scott Sweet, senior managing partner at I.P.O. Boutique, a research and advisory firm.

Despite the strong investor demand for OpenTable, which sells reservation software to restaurants and runs a Web site for diners, Mr. Sweet said that its high offering price reminded him of the dot-com bubble, particularly considering the toll that the recession was taking on the restaurant industry. “Once sanity prevails, it will likely trade down hard,” he said. SolarWinds, which has sold its business software to 80,000 customers, is growing faster and has more diverse sources of revenue, he said.

Some venture capitalists, burned by nine months with no public offerings, which provide the bulk of their investment returns, are cautious about declaring that the markets are ready to embrace small technology companies.

Just six venture-backed start-ups went public last year, the fewest since 1977 and down from 86 in 2007, according to the National Venture Capital Association. The last such company to go public was Rackspace Hosting in August. Shares of that company are down 6 percent since then.

“Some people may say this is great, but I think two I.P.O.’s is just not enough to feel like anything has changed,” said Mike Kwatinetz, a general partner at Azure Capital Partners. “We don’t want this to distract us from the fact that there’s been a radical change” that needs to be reversed, he said.

That change started after the dot-com bubble burst. Regulators set new banking and accounting guidelines that made it harder for small companies to go public, Mr. Kwatinetz said, and big investment banks bought the small banks that used to take start-ups public. Today, banks and institutional investors are less willing to spend time researching such small companies, he said.

Even if it becomes easier for small technology companies to go public, he said, “the new normal” will probably be an average of 50 venture-backed public offerings a year, down from 125 in the prebubble days and 260 at the height of the bubble. link....