Ebb & Flow

Venture firms are doing two things in this IPO window that they have done less frequently in the past: they are investing in the IPO and they are hanging onto their shares well after the expiration of the lockup period. A main reason for both phenomena is the relatively low pre-money valuations of companies going public. Thus, the venture crowd is viewing IPOs more as a financing event rather than a liquidity opportunity.

From the completion of a company's last private round to its pre-money IPO valuation, Chris Ehrlich of InterWest said the typical step-up this window is 1.5-2x. "Thus, to get the desired venture step-up of 3-5x, you have to hold on until there's a sufficient value-creating event," he said.

At the same time, buysiders have bargained aggressively over price in this window. Thus, VC participation in an IPO has sometimes been necessary to support a deal. If a company's IPO isn't likely to be a blockbuster, a VC "often needs to put money in to get the deal done," said Sofinnova's Nicola Campbell. "Public investors want to see the validation of the internal people staying on board."

Campbell said a key determinant in whether VCs put money into the IPO is the deal's book. "If the book is two times oversubscribed, you don't need VC buy in," she said. "But with less, you probably do."

One of the consequences is that lockup expirations are becoming increasingly more benign. Indeed, none of the IPO companies with lockup expirations in November traded down in the five days following the expiration (see "Lockup Watch").

"We're well aware that there's potential for handsome appreciation after a company goes public," said Abingworth's Jonathan MacQuitty. "Some late-stage stocks have a trajectory that get you good returns shortly after the IPO. But sometimes you have to allow the fruit to ripen."

HBM's Swiss bids

When HBM BioVentures acquired NMT New Medical Technologies in 2003, the firm's take-home message was that size is important. Following HBM's proposed acquisition of International BM Biomedicine Holdings last week, it seems the message

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