LinkedIn shines light on re-emergence of big IPOs

NEW YORK - Success breeds followers. So will LinkedIn'sblockbuster IPO lure scores of private companies to the stockmarket?

"One company does not make a trend, but it can certainly help,"says Mark Heesen, president of the National Venture CapitalAssociation, the venture-capital community's trade group.

LinkedIn Corp. jumped 109 percent on its first day of tradingThursday. Financial news channels tracked the company's soaringstock as it lifted off, turning its backers into millionaires andmaybe more on paper. A dazzling debut like that, Heesen says, isbound to encourage eager entrepreneurs and the investors who backthem to follow LinkedIn's lead.

The networking website raised $352 million from investors, andthen more than doubled from its $45 opening price. The stock slipped1 percent Friday to $93.09.

LinkedIn is the biggest example of a trend that's already underway but has escaped much notice until now. The market for initialpublic offerings has finally emerged from a long drought. Car-sharing service Zipcar Inc., hospital chain HCA Holdings and othershave raised $24 billion through initial public offerings so far thisyear, according to data provider Dealogic. That's more than triplethe amount during the same period a year ago.

Kathleen Smith, a principal at the IPO advisory firm RenaissanceCapital, says that if companies keep going public at their currentpace, more than 200 companies would raise $50 billion this year. Itwould easily be the best year for IPOs since the Internet bubblepopped.

"2011 could be the best year since 2000," Smith says.

One reason for the rush of companies wanting to go public: Theyare joining a two-year rally. The typical newly listed company losthalf its value in 2008, using Renaissance Capital's IPO index as agauge. The index, which tracks returns on companies listed in theprevious two years, jumped 20 percent last year and is up 3.4percent so far this year.

"In the long run, the market only works if these stocks tradeup," Smith says.

Strength in the IPO market can start a virtuous cycle, Heesensays. Venture capital firms hoping for a LinkedIn-sized payday areencouraged to back more entrepreneurs. Investment banks are morewilling to line up investors and take companies public. And aftergoing public, companies are likely to use their cash to hire moreworkers.

The financial crisis upended all markets in the fall of 2008. Butthe market for IPOs remained bleak longer than others. Just twocompanies went public in the first three months of 2009.

"Those were the Death Valley days," Smith says.

Now, some 165 companies have filed with the Securities andExchange Commission to open their companies up to public investors,the largest lineup since 2000. The list includes Dunkin' Donuts,Spirit Airlines and Yandex, a Russian internet search company. BothSpirit and Yandex are set to debut this week.

LinkedIn's ascent on Thursday naturally brought comparisons withthe tech bubble and IPOs from companies like Netscape, Amazon.comand Pets.com. Consider LinkedIn's valuation. At a market value of$8.8 billion, the company is already worth 18 times its projectedsales this year. Major internet companies like Google go for anaverage of five times projected sales, according to an analysis byCapital IQ.

But the current breed of IPOs is different, says Jay Ritter, afinance professor at the University of Florida. In the 1990s, anaverage of 300 companies went public a year, and they were mostlysmall start-ups. In 2010, 171 companies went public and many wereestablished companies.

LinkedIn is hardly a fledgling Internet website. It earned $3.4million last year on $243 million in revenue. "LinkedIn is not asmall company," Ritter says.

Another key difference: the companies going public now are morelikely to be profitable, whereas tech-bubble companies were morelikely to sell the promise of profits. According to RenaissanceCapital's data, 70 percent of companies that went public in the techbubble were losing money. Today, 70 percent of companies that gopublic have already turned a profit.