The Return Of The Tech IPO

Silicon Valley pundits are predicting 2007 will be the biggest year since 2000

When the stock market reached the height of irrational exuberance in 2000, the bubble was filled largely with the hopes of technology startups going public. That year, 170 high-tech companies sold nearly $19 billion of stock to investors in initial public offerings.

Since then, new tech-stock offerings have been mired in a six-year hangover as mergers and acquisitions became the exit strategy of choice. In 2006 only 35 tech companies sold stock to the public, about the same as 2005. Rather than taking years to build a solid business and cash out via IPO, the fantasy for many Silicon Valley entrepreneurs and financiers has been to get snapped up by Internet kingpin Google Inc.GOOG

Now it looks as if that could change. A steadying of interest rates and inflation, a recent rally in the tech-heavy NASDAQ, and exceptional performance of tech offerings since the summer of 2006 have given observers hope of a significant rise in technology IPOs this year. They point to a rise in IPO filings, usually a reliable indicator of growing interest: In 2006, 67 technology companies filed notice that they plan to go public, a 31% increase over 2005, according to Boston boutique investment bank America's Growth Capital.

As a result, bankers and investors say somewhere between 60 to 75 technology startups could make their debut on U.S. public capital markets in 2007, including such anticipated offerings as wireless broadband provider Clearwire Corp. and security software maker Sourcefire Inc. "[2007] will be the biggest year since 2000," predicts M. Benjamin Howe, chief executive of investment firm America's Growth Capital.

Another boost could come this spring when regulators are likely to ease some of the Sarbanes-Oxley Act rules that have scared many startups away from the public markets. Changes being considered by the Public Company Accounting Oversight Board, for instance, would remove audit requirements that are disproportionately costly for small companies. "For those companies that want to go public, it would make it easier," says Herbert S. Wander, a Chicago-based partner at law firm Katten Muchin Rosenman.

Optimists are hopeful that the improving climate will encourage a new class of quality startups to come off the sidelines. The CEOs of some of those companies will tell you that the classic Silicon Valley dream of building the next great tech company is far from dead. "Entrepreneurs don't found a company to make Google better," says Zachary A. Nelson, CEO of software provider NetSuite Inc., which recently chose an investment bank for an expected 2007 IPO. "They found a company to make a mark on the industry."

By Spencer E. Ante

    Before it's here, it's on the Bloomberg Terminal.