During the tech boom, initial public offerings of stock marked the graduation of startups into corporate adulthood. But for more than two years, those graduating classes have been small enough to fit into a broom closet. So perhaps the most remarkable thing about high tech's IPO Class of 2004 is that there will be one at all.
Don't expect anything close to 1999 and 2000, when a total of more than 600 technology companies went public, according to New York-based researcher Dealogic. But 2004 should outpace the past two years, which combined saw just 31 high-tech deals. "Investors are hungry for attractively valued, high-quality companies," says Goldman, Sachs & Co. Managing Director Bradford C. Koenig.
The expected end of the IPO drought is due in part to a smattering of tech upstarts delivering on promises of innovative products and smart businesses. Take Google Inc. The five-year-old Web search sensation has wowed almost everyone with the precision and comprehensiveness of its technology. What's more, Google is solidly profitable, with 2003 revenues expected to hit about $700 million, says U.S. Bancorp Piper Jaffray (USB ) analyst Safa Rashtchy.
Google may be the one company with enough heft to restart the IPO machine -- much the way Microsoft Corp.'s 1986 IPO led the way out of the tech bust in the mid-1980s. "People expect Google will be that seminal IPO," says Kevin M. Landis, chief investment officer at tech investor Firsthand Funds. "It will remind people that great companies are out there."
In this era, great doesn't mean flashy money-losers. It refers to profitable companies with solid technologies that solve everyday business problems. Says venture capitalist Jonathan D. Feiber at Mohr, Davidow Ventures: "Boring is in."
Look no further than five-year-old VMware Inc. The IPO candidate sells software that lets computers that use Intel Corp. chips run multiple operating systems at the same time. That makes computers ultraefficient and could lessen the need for corporations to buy new gear. VMware already is profitable, with revenues expected to top $50 million in 2003.
Salesforce.com Inc. is profitable, too. The four-year-old startup is riding a bona fide wave: the move to provide software as a service over the Web. Its Web customer relationship software has landed it customers such as Wachovia (WB ) Corp. and Fujitsu Ltd.
Then there's five-year-old Atheros Communications Inc. The company, which makes chipsets for wireless local-area networks, is a leader in shipping next-generation chips based on the popular Wi-Fi standard. Customers include Sony Corp. and Samsung Group.
For members of the IPO class of 2004, things are looking up. "If companies have a good outlook for growth, there's a lot of room for them to go public," says Firsthand's Landis. Let the processional begin.
By Linda Himelstein in San Mateo, Calif.