Veraz Networks, a San Jose, Calif.-based softswitch vendor became the latest Silicon Valley company to go public, but with some difficulties. The company sold 9 million shares for $7.80 each; below the offering price of $8 a share.
The weak pricing gives some credence to the naysayer theory that too many companies were being rushed to the IPO market too soon, and little to show when it came to profits. The lukewarm reception for Veraz was a surprise, for the market embraced Aruba Networks, a Wi-Fi equipment maker that is still in the red and faces a tough market environment. Perhaps, Veraz’s IPO is indicative of a sentiment change.
Veraz is an interesting story. It started out during the last bubble as IPVerse, backed by white shoe firms such as Norwest Ventures. It suffered as telecom boom sputtered, and had a near death experience. Norwest and ECI Telecom, an Israeli telecom company, later rescued it. As demand for VoIP-related gear increased, Veraz saw its fortunes turn, though company is yet to post a profit. In 2006 it had sales of $100 million in 2006, but lost around $14 million.
ECI, which owned 40% of Veraz before the IPO sold 2.25 million shares and reduced its stake to 27.5%. Norwest owns about 13% of the company. Battery Ventures owned 10.8% of the company prior to the offering.
It’s a bit amazing actually that they managed to raise almost $72M having never posted a profit. Looking at the market they are in would suggest that more money = greater scale = greater scale of losses. Maybe this is an SV outsider’s perspective but the public market’s willingness to bet that this will turn around is pretty bullish. If I were buying the stock I’d hope to cash in quick on someone bigger buying them and squeezing some extra efficiency out of that $100M in topline. If other people are thinking like that then the market is willing to be quite speculative, which is a good thing for people planning an IPO.
Any idea who the underwriters were?
BTW: I absolutely agree with your March 23rd assessment…assuming that the remaining 6.75M shares actually brought in capital to the company then one would hope that nothing disastrous will transpire with this IPO for at least 12 months.