Dick Kramlich, a 42-year veteran of the venture-capital industry, expects 2011 to be a “blockbuster” year for initial public offerings among technology companies.
“Over the next 12 months, we’re going to see something we haven’t seen in the last 10 years, which is the evidence of blockbuster IPOs,” said Kramlich, co-founder of New Enterprise Associates in Menlo Park, California, in an interview with Bloomberg Television. There will be “half a dozen companies that are going to command huge multiples,” he said.
Internet startups Facebook Inc., Groupon Inc. and Zynga Inc. have achieved multibillion-dollar valuations in the private secondary market, which took off in 2009 during the financial crisis and worst two-year stretch for IPOs in at least 38 years. LinkedIn Corp., which is valued at $2.5 billion on secondary exchange SharesPost Inc., and Pandora Media Inc. filed to go public in the past month.
The emergence of private secondary exchanges such as SharesPost and SecondMarket Inc. has given startups an additional two years to expand their businesses before going public, Kramlich said. Trading of closely held companies may jump 51 percent this year to $6.9 billion, according to Nyppex LLC, a New York research and advisory services firm.
Goldman, Digital Sky
Investors such as Russia’s Digital Sky Technologies and Goldman Sachs Group Inc. have invested billions of dollars in private companies, while SharesPost and SecondMarket have facilitated smaller transactions. That’s let early investors and employees cash out of some stock while keeping financial and business details private.
“The idea of taking a little urgency out of it for the founders and employees serves a valuable purpose,” Kramlich, 75, said in a separate interview. “You can afford to take calculated risks that might be unwise in a fishbowl of a public company,” he said.
NEA, which Kramlich helped start in the late 1970s, was the first venture investor in Chicago-based Groupon three years ago, when it was called The Point. Groupon, the biggest website for daily deals, sold a 10 percent stake to Digital Sky last year at a $1.35 billion valuation. The company’s value soared to $4.75 billion last month, when firms including Andreessen Horowitz, Greylock Partners and Kleiner Perkins Caufield & Byers invested $950 million. Both of those investments included sales by existing shareholders.
Groupon Chief Executive Officer Andrew Mason said at a conference last month in Munich that the company is considering an IPO, though the chances of that happening this year are “less than 100 percent.” Kramlich declined to comment on Groupon.
Facebook, Groupon, Zynga
Facebook, the largest social-networking site, was valued at $50 billion last month, when Goldman Sachs led an investment. Zynga, the biggest maker of games on Facebook, is in talks to raise capital from T. Rowe Price Group Inc. and Fidelity Investments at a valuation of close to $10 billion, two people familiar with the matter said this week. Facebook, in Palo Alto, California, and San Francisco-based Zynga have both sold previous stakes to Digital Sky.
“A vacuum was created,” Kramlich said. “This gives companies time to get their act together and show what they can really do.”
Kramlich co-founded NEA with Chuck Newhall and Frank Bonsal. He began his venture career in 1969 at Arthur Rock & Co. NEA raised a $2.48 billion fund in 2009, more than twice the size of any venture fund raised since. It’s the firm’s 13th fund, and Kramlich said it will be his last as a full-time partner.
Among his most profitable investments were Juniper Networks Inc., the second-largest maker of networking equipment, and Macromedia Inc., which was acquired by Adobe Inc. in 2005. Kramlich led NEA’s investment in Force10 Networks Inc., which last year filed to raise as much as $144 million in an IPO.