But the IPO market dried up after the Nasdaq's tailspin in April, as companies waited for better conditions. Companies brave enough to launch in recent months have found that volatility--not double-digit increases--is the only constant.
Mark Dicioccio, managing director of Lehman Brothers' West Coast technology investment banking team, told CNET News.com which sectors will rise above the fray in today's unpredictable market. His picks: infrastructure and fiber-optic companies.
Dicioccio (pronounced "dee-CHO-cho") also explained why the IPO market dried up this spring and listed his expectations for the rest of the year.
CNET News.com: What did you think of the IPO market before the April correction in the Nasdaq?
Dicioccio: I thought it was lunacy. Every metric used traditionally by which to assess the viability of a company was effectively thrown out the window by investors. The online trading and day trading, the amount of companies being financed by VCs and taken public by investment banks reached fever pitch levels.
It's not to say that static metrics should be enforced, but there needs to be some consistency of what constitutes a viable business model. I think investors lost their heads. There are a lot of hangovers right now.
How much has the IPO market cooled since then?
The number is actually up on a year-over-year basis. I believe both the number and the dollar value are greater than in 1999. There is more activity than last year. The IPO business is bigger than it's ever been.
But clearly the market for IPOs is different. What has changed?
There have been major changes in investor psychology in terms of what sectors they are prepared to invest in. Anything that was a "me too"...If these guys don't have a differentiating advantage, investors are not going to be interested.
That was not the case in 1999. The market was ebullient enough that it was prepared to invest in say half a dozen companies in the same field, and the idea was that the market was big enough to support it.
What are investors and investment bankers looking for now?
Infrastructure and enabling technologies. You look at infrastructure, fiber-optic companies that are providing technology solutions, companies that enable phone networks to go to the next level.
Has there been any fallout among investment bankers from the huge number of e-commerce and dot-com IPOs that debuted in 1999 and early 2000 and have
since plunged in value?
The way it has impacted individual firms varied based on the perceived quality control they exercised when they brought those companies public.
In an ebullient market environment, it is not our job to judge what investors care to invest in. If investors care to invest in ten dot-coms that all offer the same thing, you can bet there will be investment banks to bring them public. There were some investment banks that did not exercise as much quality control as they could have. I think it does impact a firm's reputation how they controlled their underwriting during that period.
What responsibility do investment banks have when helping young companies go public?
There is an onus on the investment bank to do their due diligence and ask the right questions and see that the business model is mature enough to perform in the aftermarket. But the company may look at you and say, "What's wrong with you? Ten other guys said they would take me tomorrow."
Where is the market going from here?
Our view is that all the fundamentals are there for continued growth. The election seems to be a nonissue, and (Federal Reserve Chairman Alan) Greenspan seems to have architected a soft landing. Given that the Fed has indicated they won't tighten until after the election, that gives the market pretty good running room.