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The return of the tech IPO?
Two years after the Nasdaq peak, the new-deals market is near-dead -- but optimism in the Valley abounds.
March 7, 2002: 2:23 p.m. ET
By Adam Lashinsky

graphic PALO ALTO, CALIF. (CNN/Money) - Boston Globe tech-columnist Scott Kirsner approached me Wednesday night after I moderated a panel on IPOs for the Churchill Club, the pre-eminent public-policy civic group of Silicon Valley.

The discussion was lively, and the visitor from the Northeast wanted to know if everyone out here is so darn optimistic or is it just the folks who show up for gabfests like this. In Boston, he related, the mood regarding the outlook for technology is glum. How can folks in Silicon Valley be so upbeat?

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Good question. The answer is that the valley is by its nature an upbeat place. There was optimism here long before the MBAs -- and, ahem, the financial press -- arrived. "Geek" isn't a pejorative here. And for several decades the geeks of Silicon Valley have been happily enduring booms and busts, all the while creating the technology that led to each boom cycle's next new thing, from semiconductors and disk drives to PCs to the Internet.

But the question at hand was whether the IPO market would return.

Ben Holmes, an independent IPO analyst in Boulder, Colo., noted that of the 11 IPOs so far this year, more than half have been on the New York Stock Exchange, showing just how tough things are for the Nasdaq and technology.

Even habitually eternal optimists are mellower now. Brian Bean, head of technology investment banking for the Robert Stephens unit of FleetBoston, sees the IPO market "gradually improving."

But he's loathe to commit to any themes for coming IPOs, in short, because there aren't any. As for the biggest theme of the go-go 1990s, he says, "The Internet is a dirty word, and I refuse to discuss it in polite society." Bean believes the "old" criteria are back in vogue in order for a company to go public. It must have at least $30 million in sales, be profitable for a quarter or two and be valued at a low multiple to its sales.

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    Maybe. But there are exceptions. Magma Design Automation (with one of those rare, great tickers -- LAVA) was one of the few companies to go public in 2001. Its first profitable quarter was its first as a public company, and even that was on a pro forma basis, excluding the effect of non-cash compensation expenses. Magma is worth about 10 times its annualized sales, not a low multiple at all.

    No matter how many great toys the geeks of Silicon Valley create, the IPO game is over. But IPOs themselves haven't gone away. And the few companies that can do it are still over-rewarded, perhaps because of the scarcity of new shares and the relatively high quality of their "stories."

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