Hungrier Investors, Loosened Regulations Could Spur More Local IPOs

Not every startup’s path to Wall Street will take it through the White House Rose Garden, but the journey could be made shorter, easier, and cheaper thanks to legislation signed there last year, as the CEOs of two startups based in Colorado have learned.

On April 5, 2012, President Barack Obama signed the Jumpstart Our Business Startups Act into law. While the JOBS Act affects startups in various ways, the most important provisions so far have benefitted “emerging growth companies” that are reaching the point where they are considering an initial public offering.

The CEOs of three Boulder, CO-area companies attended the ceremony. Their companies—Rally Software Development, Return Path, and Zayo Group—meet the definition of emerging growth companies.

Rally (NYSE: RALY) went public Friday with an IPO of $84 million. Rally’s stock climbed from $14 to about $18 on its opening day, giving it a $400 million market cap.

The company makes cloud-based project management tools for software developers.

Rally’s IPO was the first for a Colorado software company in years, but others could quickly follow, CEO Tim Miller said.

“There are many successful startups that are right behind us. We’re excited to be paving the ground for those folks, but there’s a wave of companies that have just as much potential,” Miller said.

Those companies will benefit from a market that seems hungry for companies like Rally that aren’t aiming for giant IPOs but promise a lot of growth, Miller said. They also will benefit from the new rules for companies with total annual gross revenue of less than $1 billion.

One of the goals of the JOBS Act is to encourage more companies to go public by making the process less costly and burdensome. Since the 1990s tech boom collapsed, the number of IPOs has dropped significantly, with IPOs in the $50 million to $150 million range becoming rare.

Executives of growing private companies have taken notice of the new landscape, according to Return Path CEO Matt Blumberg. Return Path develops e-mail delivery and intelligence software that helps users make sure messages get through and optimizes recipient response. It has about 400 employees and dual headquarters in Broomfield, CO, and New York City.

Blumberg said that executives he knows are studying the new regulations created following the passage of the JOBS Act, weighing their impact, and talking quietly about how their companies could benefit.

“It’s been a real topic of conversation this year,” he said.

More than that, the regulations have led to action. Blumberg said he knows several companies that went public in the past year and took advantage of the new rules for emerging growth companies. They would not have made the leap under the old regulations, he said. (Blumberg declined to name the companies.)

“They were on the edge, and this helped them go over,” Blumberg said.

Analysts also believe that while the number of IPOs has remained steady, there seems to be interest brewing behind the scenes.

“Though the U.S. IPO market continued to trend sideways in the first quarter, we expect a pickup in activity through 2013 given the … Next Page »

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