Area IPOs top $1 billion mark

BYLINE: By George Avalos, BUSINESS WRITER

Local workers might not be ready to resume weekly kegfests, or party like it's 1999. But investing activity for first-time sales of stock to the public has started to heat up.

The dollar value for initial public offerings by fledgling companies located in the Bay Area topped the $1 billion mark during the second quarter of 2007. And IPO activity in the third quarter of this year has already jumped above $1 billion dollars.

The upswing suggests the fallout from the dot-com implosion at the start of this decade has failed to erode the culture of innovation that is crucial to the Bay Area economy. The high-tech industry appears to have overcome many of the challenges unleashed by the Internet debacle of seven years ago, and more biotech companies are getting traction as their products become proven winners. "Tech is hot," said Rob Enderle, principal analyst at the Enderle Group, a Silicon Valley research firm. "Things are warming up in the IPO market."

During the April-June period, Bay Area startups raised $1.3 billion through IPOs. That was the first time in two years that the region's new companies exceeded the billion-dollar level, according to a survey by this newspaper of initial public offerings.

So far in the third quarter, which began July 1, IPO activity in the Bay Area is just below $1.1 billion.

The two consecutive quarters of IPOs totaling at least $1 billion is the first time this has happened in the Bay Area since the year 2000 -- the peak of the dot-com investing frenzy.

"The Bay Area remains a center for innovation," said Tim Bajarin, primary analyst with Creative Strategies, a market researcher in Silicon Valley. "This region is still a beehive of high-tech activity that draws from academic, corporate, engineering and entrepreneurial backgrounds."

Bajarin pointed to world-class educational hubs at UC Berkeley and Stanford University, the venture capital outlets on Sand Hill Road, the national laboratories in the East Bay, and lesser-know, yet still robust, innovation programs at local companies.

"You have powerful research facilities at places such as Hewlett-Packard, Intel and Xerox," Bajarin said.

The largest amount raised so far in 2007 came from VMware Inc., a software firm that had an IPO worth $957 million. The second largest Bay Area IPO this year came from an East Bay software company: San Ramon-based Solera Holdings Inc. that raised $420 million through the stock sale.

Despite the improvements, some industry observers warn there are no assurances the surge in IPO activity will persist.

"There is a bit of an uptick now, but how long that uptick can be sustained is another question," said Tom Foremski, publisher of Silicon Valley Watcher. "It's nice to see consecutive quarters of a billion dollars. It's too early to tell if this is going to be sustained."

Yet an executive with one Bay Area company that went public recently said it appears investors are embracing local firms that have compelling products and solid management. CAI International, a San Francisco-based company that leases freight containers, reported an interested audience during presentations to investors for its IPO, which raised $87 million.

"We found that people were receptive in listening to our story," said Victor Garcia, CAI's chief financial officer. "They were looking to invest money in new companies."

CAI executives believe investors are looking for many of the same qualities in new companies.

"They are looking at the sustainability of your company," Garcia said. "They want to see what kind of growth you can muster."

And the track record for Bay Area companies that have been public for less than a year suggests that for the most part, investors seem to be making wise decisions. The average gain in stock price since the companies staged their IPOs is 25 percent for the 30 newly public companies in the region, based on closing prices on Monday.

The strongest performance comes from Riverbed Technology Inc., a San Francisco-based networking company, which was up 339 percent. VMware, which went public earlier this month, is already up 149 percent.

And the two East Bay companies that have been public for less than a year also are doing well. Hayward-based Thermage Inc., a medical equipment maker, is up 21 percent since its IPO. Solera Holdings has gained 13 percent.

Analysts believe the region's innovative future remains bright, even post dot-com.

"Our brain trust in this region not only remains strong, it appears to be getting stronger," Enderle said.

Reach George Avalos at 925-977-8477 or gavalosbayareanewsgroup.com.