As the 2005 IPO market revs up, an early deal to watch will be optionsXpress Holdings Inc. The Chicago-based online options brokerage last week filed a preliminary price estimate of $16.50 per share and aims to raise $227.7 million in an offering led by Goldman Sachs. The company has a catchy pitch, but just as intriguing is the tale of its largest shareholder, Summit Partners, a firm that zigged while other VCs zagged.

Summit is a late-stage investor, meaning it invests up to $250 million per deal in private companies that have broken even, are growing annual sales by at least 15%, and have never taken a dime of VC money. It hunts for prospects in sectors ranging from tech to consumer services. That wide scope helped the firm switch gears after tech imploded in 2000.

Like most VC firms, Summit loaded up on tech in the naughty ’90s—about 60% of its portfolio was tech-related eight years ago, says managing partner Walter Kortschak. Today, the tech portion is more like 15%. During the same period, while many VCs groped for survivors amid the dot-com wreckage, Summit hiked its investments in financial-services companies from roughly 15% to 30% of its portfolio. “With the consolidation that has taken place among financial institutions, there is a great opportunity for many of these younger companies to serve the retail investor,” Kortschak says.

That’s optionXpress’ come-on. The company’s red herring says that although the listed options market is growing by 22.5% per year, only 9% of online brokerage accounts are authorized to trade options. That’s where optionsXpress comes in, offering affordable online options trading for the little guy. In the first nine months of last year, the company earned $22.5 million on $67.5 million in revenues, a 56% increase in net income from the same period in 2003. We'll see how the company fares once it's in the headlights of big boys like Schwab and E*Trade.

Summit owns 18.2 million preferred shares of optionsXpress, which it bought last year for about $4.86 a piece. The firm stands to more than triple its money in the IPO. Not bad.

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