In the wake of Facebook's underwhelming Wall Street debut, many in Silicon Valley had been counting on a number of up-and-coming enterprise software companies to lift the tech industry out of its IPO doldrums.

That hope is fast fading.

With Europe's pinballing economy continuing to drag on U.S. stock markets, some venture capitalists and startup executives fear the post-Facebook chill could linger through the end of the year, leaving only the strongest companies able to go public.

"We're talking not even a handful of companies. We're talking one or two," said Dale Fuller, chief executive of Redwood City-based enterprise software-maker MokaFive. "The markets are very skeptical."

That could be bad news across the Bay Area, because successful initial public offerings tend to create a ripple effect of wealth for investors, employees and anyone hoping to benefit from rising real estate prices and luxury car sales.

While the past year's tech-IPO darlings have been consumer-serving social media companies such as Facebook, Groupon and Zynga -- all of which have failed to impress Wall Street -- the next wave of IPO candidates target big businesses and boast healthy and fast-growing revenues. In effect, some pundits see them as the grown-ups at the party.


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Pleasanton-based human resources software company Workday, for instance, is expected to file soon for an IPO. Palo Alto Networks, which is actually based in San Jose and makes computer security software for big companies, is already in the queue and may begin trading this month.

But even if those companies go public in spectacular fashion, it's likely going to take a lot more to jump-start the IPO market. Sam Hamadeh, CEO of financial analysis firm PrivCo, says June was the worst month for initial public offerings since 2008, with just four companies going public nationwide. His data echoes that of recent reports by PricewaterhouseCoopers and Ernst & Young.

And even before Facebook's underwhelming debut, 2012 had been a down year for IPOs. Since January, 71 U.S. companies have gone public, compared with 85 during the first half of 2011, PricewaterhouseCoopers found. What's more, when you take away the $16 billion Facebook raised, this year's IPOs as a whole have reaped less than half as much money as those 85 companies.

A recent nationwide survey of investment bankers by accounting firm BDO found that two-thirds predict the IPO market will remain flat or even decline in the last six months of the year. Worldwide financial weakness, as well as uncertainty over the U.S. presidential election, were identified as the primary culprits.

Fuller -- whose 7-year-old startup makes software to let employees of companies like Goldman Sachs and BP use their personal computers at work in a secure, cloud-based setting -- said his company's second-quarter revenue doubled all of last year's sales. Despite that, and despite his experience as CEO of public software companies Borland and McAfee, he thinks an IPO is out of the question for the foreseeable future.

That's prompting him and other CEOs to think about different ways to underwrite growth, such as borrowing money or swapping more equity in exchange for private capital.

It's not just mature companies that are feeling the chill. Paul Graham, the startups guru who runs Mountain View incubator Y Combinator, warned his portfolio companies last month that investor grumpiness with Facebook's underwhelming stock performance may make it hard for newer tech companies to land funding.

"If you haven't raised money yet, lower your expectations for fundraising," Graham wrote in a letter that has reverberated throughout the startup community.

Still, others say there's reason for optimism if the overall economy can settle down.

PricewaterhouseCoopers points out that 29 companies filed for IPOs during the second quarter, bringing the number of companies that have done so in the past year to 121. Henri Leveque, head of PwC's U.S. capital markets practice, calls that "robust pipeline" a positive sign for the IPO market going forward.

PrivCo's Hamadeh said he remains sanguine on enterprise IPOs, noting that San Diego-based ServiceNow, which provides cloud-based IT software services, saw its IPO soar 37 percent in its debut late last month.

Cloud-based companies, which deliver business software via remote servers, save companies "tens of millions a year in costs," Hamadeh said. That's likely to boost demand for their products as big companies look to save money.

Some Silicon Valley venture capitalists agree it's no time to panic.

"We have had a miserable several weeks, but I believe we are headed for a better IPO market later this year," said Paul Madera, managing director of Palo Alto's Meritech Capital.

"There are many high-quality, private companies with great businesses," Madera said. "And the U.S. economy is improving, albeit slower than we all had hoped."

Should economic conditions here and abroad pick up in the fall, Madera predicts investors will gain the needed confidence to take a chance on newly public stocks.

"I am bullish," he said.

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.

In the queue
Here are some Silicon Valley companies that are expected to go public within the next year.
  • Pleasanton-based Workday, which sells cloud-based human resources software -- and is led by PeopleSoft co-founder Dave Duffield -- was widely expected to have filed IPO plans by the end of June. That hasn't happened, according to the Securities and Exchange Commission's website. Still, it's unclear whether Workday has gotten cold feet or has merely opted to file IPO plans privately with the SEC, as permitted by new rules signed into law in the spring. A company spokesman declined to comment.
  • Also keeping mum is Sunnyvale's Ruckus Wireless, a maker of Wi-Fi technology that, like Workday, is reported to have signed up Goldman Sachs to lead an IPO this year. Chief Executive Selina Lo was traveling and unavailable for comment, but a spokesman said, "We are looking at all options" for future funding. Industry sources, however, say economic trouble in Europe hasn't changed the company's timing and that Ruckus still aims to go public by the end of the year.
  • Palo Alto Networks -- which is actually based in San Jose -- filed in April for a $175 million IPO. The maker of computer firewall and security software last year named former VeriSign CEO Mark McLaughlin to its top job, and it will reportedly begin its pre-IPO "roadshow" for potential investors as soon as next week.
  • Mountain View's Box is another hot private company that could help reignite interest in the IPO, according to analyst Sam Hamadeh. But after Microsoft's recent $1 billion acquisition of Yammer, the cloud-data storage company could get snapped up by another big player, he said. Box CEO Aaron Levie said he's "super-focused on building a large, independent company, and an IPO in the near-term isn't an immediate focus."
    Source: Staff reporting