The Way of the VC 风险投资之道

Bloomberg News, sent from my iPhone. Who said the IPO market is closed doesn't know about this.

Venture Firms Back ‘Hybrid’ IPOs to Help Startups Sell Shares

June 1 (Bloomberg) -- A company backed by a half-dozen venture capital firms and about 200 institutional investors is trying to make it easier for startups to stage initial public offerings, a bid to spur a recovery after the market collapsed.

InsideVenture Inc. will introduce a new kind of transaction today called a “hybrid public-private offering,” Chief Executive Officer Mona DeFrawi said in an interview. Startups selling stock under the program would make the same filings as in a regular IPO. The shares would be offered first to investors that work with Menlo Park, California-based InsideVenture.

The HPPO, pronounced “Hippo,” is a new part of the venture-capital industry’s response to the worst drought of IPOs in at least 38 years. The program is designed to spur interest in technology startups and create a new way for venture capitalists to earn a return on their investments.

“We had this wonderful IPO market in the 1990s,” DeFrawi said. “Then we abused it, and since we’ve had a hangover. We want to reorient the market to long-term growth.”

Connecting venture-backed technology companies directly to investors will let firms that are too small to interest large investment banks try to raise money, said David Weild, executive chairman of InsideVenture.

The HPPO process will be similar to an ordinary IPO, where investment banks underwrite the offering and sell shares to the public, said Weild, a former vice chairman of the Nasdaq Stock Market. Companies will file quarterly reports with the U.S. Securities and Exchange Commission after they go public. The difference is that InsideVenture will help companies sell shares to its members before the offerings become final.

The final regulatory filings before HPPO deals take place will disclose which institutions have already agreed to purchase shares, Weild said.

Getting In Early

Institutions part of the InsideVenture group include T. Rowe Price Group Inc. and Wasatch Advisors Inc., DeFrawi said. Venture capital firms involved include New Enterprise Associates and Oak Investment Partners.

The program is being introduced as the IPO market and the venture capital industry contract, threatening access to funds for companies. No startups staged IPOs in the fourth quarter of last year or the first quarter of 2009, the first six-month drought in at least 38 years, according to the National Venture Capital Association, a trade group.

The test of the program is whether companies use it. InsideVenture has to sell the HPPO idea to startups, which might be holding out for a traditional IPO or another round of venture funding.

“I’m in the listening mode,” said Gajus Worthington, CEO of Fluidigm Corp., a medical-research equipment company in South San Francisco, California. Fluidigm has been approached about trying a HPPO, he said.

‘Well Established’

“Right now, the IPO process is well established,” said Worthington, whose company withdrew its IPO bid Sept. 22, the week after Lehman Brothers Holdings Inc. collapsed. “Why should I have more confidence in this when it hasn’t been done before?”

Another test of HPPOs will be whether companies can maintain their stock price after the initial buyers reduce their holdings, said Lise Buyer, an IPO consultant in Portola Valley, California.

“Post-IPO stocks will still be subject to sharp drops if companies miss financial targets in the quarters soon after their Hippo deals,” Buyer said.

T. Rowe Price sees the program as a way to get a higher percentage of shares than in a conventional IPO, said Hugh Evans, associate manager of the Baltimore-based company’s New Horizons Fund. The fund can also meet companies earlier, because InsideVenture will connect firms and investors, he said.