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VC-backed IPOs get boost from Net infrastructure companies

Following a dismal second quarter, venture capitalists are once again able to count on the public markets to receive a return on their investments.

Following a dismal second quarter, venture capitalists were once again able to count on the public markets to receive a return on their investments.

Boosted by investors' appetite for Internet infrastructure companies, 34 tech companies that received venture funding were able to go public last quarter, raising $3.7 billion. By comparison, 22 IPOs raised just $1.9 billion in the previous three-month period, according to a new survey by research firm VentureOne.

The money
trail Despite the dramatic rebound, the results fall far short of last year's torrid pace, when 62 venture-backed companies went public in the second quarter, raising $4.4 billion, and another 54 went public in the third, netting $3.9 billion.

"The strong IPOs are still getting out," said Ira Ehrenpreis, general partner with Technology Partners. "There's still a demand for quality companies, and the third-quarter results are evidence of that."

Tamar Zemel, VentureOne spokeswoman, noted that the amount of money being raised has remained strong, even compared with 1999, as investors value quality over quantity.

"There are fewer deals being done than last year, but they're raising nearly the same amount," she said.

Venture capitalists typically invest millions of dollars in young companies in return for an equity stake. The investments pay off when the company sells shares to the public or is acquired by another company--although neither is guaranteed.

Internet infrastructure companies, which include communications and networking companies, generated nearly $2 billion from a mere eight deals in the third quarter. The previous quarter and year-ago figures pale in comparison, when $306 million and $363 million was raised, respectively, from four deals each.

Corvis, a fiber-optic equipment maker, accounted for the bulk of funds raised in the third quarter. Corvis, which raised $1.1 billion in its July IPO, also ranked as the largest venture-backed public offering in the third quarter.

Other Internet infrastructure players to top the IPO list included CoSine Communications, which handles some connection services for Internet service providers, and Avici Systems, a high-speed data-networking equipment maker. CoSine and Avici raised nearly $250 million each with their IPOs.

E-commerce and content companies, however, did not fare as well. Neither sector saw IPOs launch in the third quarter, marking a second consecutive quarter with no deals.

"Sector sentiment plays a part, but companies that can still perform will have opportunities," Ehrenpreis said.

Meanwhile, as in previous quarters, information technology companies represented the majority of funds raised in venture-backed IPOs. A total of $6.6 billion was raised in the third quarter, with technology companies accounting for 56 percent of the total, according to VentureOne.

As for the fourth quarter, analysts said investors can expect more of the same.

"Communications, networking and Internet infrastructure will remain strong in the fourth quarter," Ehrenpreis said, noting the drivers will continue to be the growth of the Internet and demand for broadband connections. "As we look at deals in these spaces, these companies are ultimately the data-transport mechanisms that will get more people on the Internet and more data-intensive applications to those people."