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Is Wall Street once again taking calls from IPO-bound technology companies? Well, it depends on who’s calling. A variety of Web-related companies are now out of favor with the public capital markets, and have been since spring. Communications firms, particularly those in the optical networking category, now appear to be all the rage. But venture investors caution that recently released quarterly data showing record-high deal flow, but lower total value, does not necessarily spell near-term success for venture-backed initial public offerings. “I think it is hard to make a judgment about what is happening in the industry based on quarterly valuations or IPOs,” said Art Marks, general partner of venture firm New Enterprise Associates. Marks, who works in NEA’s Reston, Va., office, told LocalBusiness.com the market has been unsteady and has clearly narrowed. A research report released by the National Venture Capital Association and Venture Economics, a New Jersey-based research division of Thomson Financial, said 81 venture-backed companies completed IPOs worth a combined $7.6 billion during the third quarter. In total, 143 companies went public during the quarter. The tally of IPOs by VC-backed companies was the highest ever, but their combined value falls short of the $8.5 billion raised in 77 deals during the first quarter of 2000. RECOVERY FROM BRUTAL Q2 The dollar amount and deal flow were a significant up-tick from the volatile second quarter, when scores of tech-related deals were slashed in value, postponed and withdrawn. For the three-month period ended June 30, only 54 VC-backed companies staged IPOs with an aggregate value of $4.3 billion. The latest quarter’s results suggest a rebound, but venture investors remain skeptical of drawing quarter-to-quarter conclusions, preferring more long-term analysis of 12 to 18 months. Steve Lazarus, a managing director at Chicago-based ARCH Venture Partners and NVCA research chairman, said, “The phenomena of 1998, 1999 into 2000 is a real watershed. I think it’s driven by a number of forces, only one of which is money coming in from venture capitalists.” Specifically, Lazarus cites the increased investment by corporations in emerging growth companies as a major factor that has propelled the general market success of tech IPOs for the greater part of two years. This view contrasts sharply with the once rapid-fire approach that tech companies, particularly dot-coms, had taken to raising venture capital and going public. It suggests the market is returning to a more normal, albeit slower, IPO pace. THE PITTSBURGH SITUATION Despite the strong deal-volume numbers, several IPOs have been put on hold or scrapped altogether in recent days. One company to withdraw its offering citing weak market conditions was SightSound.com., based in Mt. Lebanon, south of Pittsburgh. After initially filing in the second quarter, the company tried to wait out the market, but eventually decided to pull back rather than risk a plunge into the jaws of a less-than-friendly reception. One Pittsburgh area company that made the IPO plunge — but not without risks — was Oakmont-based ServiceWare Technologies Inc. (Nasdaq: SVCW). After filing in early March, the developer of call-center and customer service software took the plunge in September. But even ServiceWare had to reprice its target twice and change lead underwriters in the weeks leading up to its IPO. Another area company, printCafe Inc., also filed its IPO in the second quarter but has not moved beyond that stage. According to Mary Smith, communications manager for printCafe, the company is still on track to complete its offering, but no date or target has been set. Among other casualties nationwide:
Homestead.com, a Menlo Park, Calif.-based integrator and distributor of Web content, services and technology. The company had planned to raise $70 million. CheMatch.com, a Web-based, business-oriented marketplace for the chemicals, plastics and fuel products industries. The Houston company had planned to raise as much as $60 million. ReleaseNow.com, which had planned to raise as much as $52 million. Diveo Broadband Networks, a Washington-based provider of high-speed Internet, data and voice services to metropolitan Latin American markets. Diveo had planned to raise as much as $150 million. Freei Networks, a Federal Way, Wash.-based provider of free Internet access; the company had planned to raise as much as $170 million.

COMMUNICATIONS SOARS E-commerce and content companies account for many of the IPO postponements and cancellations. But the communications infrastructure sector continues to be a stellar performer. It’s also been an attractive IPO bid for Wall Street. The NVCA/Venture Economics report found that the largest VC-backed deal in the third quarter was the $1.1 billion offering by Columbia, Md.-based Corvis Corp., which sold 31.6 million shares at $36 a share. Venture investors in Corvis included Silicon Valley-based Kleiner Perkins Caufield & Byers and Integral Capital Partners, Baltimore’s New Enterprise Associates, and networking behemoth Cisco Systems Inc. Shares of Corvis opened at $95 on July 28. The stock was recently trading at $51.31 after reaching a high of $114. It is hardly surprising the biggest deal of the quarter would come from an optical networking company. Overall, NVCA and Venture Economics reported 15 communications-related IPOs that raised a total of $1.6 billion, more than 20 percent of all venture-backed IPO volume. Larry Seben in Pittsburgh contributed to this story. Copyright � 2000 LocalBusiness.com.

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