Tech IPOs out of favor, may be for some time

By Phil Wahba

NEW YORK (Reuters) - Tech companies once dominated the U.S. IPO calendar -- but not anymore.

During the dot-com craze nearly a decade ago, practically every other IPO was by a tech company. Last year saw a revival, with 37 information technology companies raising $7.6 billion -- their best showing since the bust.

Yet so far this year, only three IT companies have gone public, raising $531 million, according to Thomson Reuters data, as risk-averse investors gravitate toward surer bets.

Friday's offering by San Antonio, Texas-based Web hosting company Rackspace Hosting Inc (RAX.N) -- the first tech IPO since February and the first venture capital-backed IPO of any kind since the first quarter -- helped show why some are hanging back. Its shares dropped 20 percent on their debut.

"It's never been this rough to get tech companies to IPO," said Mark Heesen, president of the National Venture Capital Association.

To be sure, overall market sentiment has been unforgiving toward all industries.

Kentucky-based coal producer Rhino Resources Inc shelved its IPO last week, and Chinese advertising company China Mass Media International Advertising Corp (CMM.P) had to halve the number of shares in its offering to get to the launch pad. Its shares are down 15 percent since the IPO last Monday.

Even in the popular solar sector, GT Solar International Inc (SOLR.O) is trading 27 percent below its opening price.

Still, tech companies are waiting longer in the pipeline, and with fewer VC-backed tech IPOs, more small companies are expected to look toward being acquired instead.

"We're seeing entrepreneurs more than willing to go the acquisition route rather than go public," Heesen said, adding that many tech companies now seem to want from the outset to be acquired instead of becoming giants in their own right.

One of the 12 withdrawn tech IPOs this year was from Danger Inc, a mobile services company bought by Microsoft Corp

(MSFT.O).

"When they look at how long a trek it is to go public, an IPO is no longer the golden ring," Heesen said.

FORMER DARLINGS

Part of the problem is IT companies seeking to go public often only have a short track record that would-be investors can scrutinize.