SilverStream dips into public market

A start-up called SilverStream Software is hoping its initial public offering today will help it survive against heavyweights IBM, Sun Microsystems, and Microsoft in the burgeoning e-commerce software market.

SilverStream competes against some 50 companies that build application servers, software that helps businesses build e-commerce Web sites. With so many technology firms in the market, start-ups such as SilverStream have turned to IPOs as a way to survive and stay independent, analysts say.

So far, SilverStream has been golden. Stock for SilverStream doubled today in its first day of trading. It was priced at 16 for its initial public offering, surged to 39.38 earlier today before falling to 32.75 by mid-afternoon as more than 7.6 million shares were traded.

In raising $48 million from its IPO, SilverStream becomes the second of three application server companies to go public to raise cash for expanded sales and other efforts. Earlier in June, Persistence Software raised $33 million from its IPO. A third start-up, Bluestone Software, filed for an IPO in July.

"They want to continue to sustain themselves and keep the engineering, marketing and sales bandwagon going," said analyst Mike Gilpin, of Giga Information Group.

Overall, SilverStream today raised $48 million as it made 3 million shares available, which represents about a 17 percent stake in the firm. Its initial price of $16 was up from the $13 to $15 range it had originally set. The startup's high of 39.38 gave the company a market value of $668.6 million at the time.

Analysts predict the application server market will further consolidate in the next few years as software heavyweights, such as IBM, Oracle, Microsoft and the Sun-Netscape Alliance, take over the brunt of the market share and smaller players either get bought out or die.

A year ago, in fact, three startups were purchased by bigger firms who saw the software as critical for their product line. In deals worth about $180 million each, Sun purchased NetDynamics, Netscape bought Kiva and BEA Systems picked up WebLogic.

Gilpin said SilverStream has a good shot at surviving and staying independent. Its application server offers one of the easiest to use development tools for building e-commerce Web sites and can work well as an add-on to the app servers by the bigger software companies, he said.

Application servers run the transactions between Web browsers and back-end services, such as databases, human resources software, or stock trading systems. It's an emerging market that is expected to grow to more than $2 billion in revenue by 2002, according to Forrester Research.

Gilpin said SilverStream's founders have a history of succeeding. SilverStream's executives previously created PowerSoft, maker of development tools for client-server software. Before starting SilverStream, they sold PowerSoft, and its popular PowerBuilder development tool, to Sybase.

"They think they can do the same thing again and become a big company," Gilpin said. "It's very expensive to compete in this business, so by raising $48 million, they can maintain a competitive set of products and encourage independent software vendors and resellers to use their technology. To do that, it will cost money."

According to documents filed with the Securities Exchange Commission, SilverStream lost $9.3 million during the first six months of this year, compared with a loss of $6.6 million during the same time last year. Revenue during that time has increased from $1.7 million to $7.8 million.

SilverStream executives said they plan to spend about $8 million to expand sales and marketing, $4 million for research and development and another $5 million to improve its professional services.

Bloomberg contributed to this story.