MediData's IPO: Did VC's Exit Strategy Pay?

| About: Medidata Solutions, (MDSO)

The fondest wishes of venture capitalists are coming true as the IPO market appears to have a heartbeat again. While a far cry from the roaring 1990s, exit-starved VCs and entrepreneurs should be encouraged by the healthy performance of Medidata Solutions Inc. (NASDAQ:MDSO) when it began trading Thursday.

The oversubscribed offering priced at $14, above its expected range of $11 to $13, and then opened trading 25% higher than that at $16.75 on the Nasdaq exchange. Shares traded as high as $19 before closing at $17.02, a gain of 21%.

Medidata's IPO was a profit bonanza for the company's venture backers -- Insight Venture Partners, Milestone Venture, Stonehenge Capital, GlobalNet Partners and Silicon Alley Ventures. The firms made a combined $24.4 million profit in just the first day, with Insight's 33% stake giving it a $16.3 million profit.

Venture firm
Post-IPO stake
Value ($mill.)
First-day profit ($mill.)
$14 offering
$16.90 open
$17.02 close
Insight Venture Partners
33.90%
$76.11
$91.89
$92.42
$16.31
Milestone Venture
7.60%
17.06
20.6
20.72
$3.66
Stonehenge Capital
6.10%
13.65
16.48
16.58
$2.93
Silicon Alley Ventures
1.70%
3.79
4.58
4.61
$0.81
GlobalNet Partners
1.40%
3.21
3.88
3.9
$0.69
Total
$138.23
$24.39

Source: The Deal, S-1 filing
Click to enlarge

Medidata's IPO puts another notch in the belt of Insight, who boasted a highly profitable exit just weeks ago. The firm made roughly 4.5 times its $50 million investment in network management software developer SolarWinds Inc. (NYSE:SWI) when the company went public in May.



More importantly for the venture industry overall, Medidata is the 10th IPO on a U.S. exchange this year, and it has triggered a changing sentiment about going public after there were no venture-backed IPOs in the fourth-quarter of 2008.



Although investors reached by The Deal on Thursday, ranging from August Capital LLC's David Hornik to StockTwit's Howard Lindzon, remain only

cautiously optimistic

that the drought may be over, they may be encouraged by more signs of fair weather ahead.



Next week holds some promise with venture-backed LogMeIn Inc. planning to raise $100 million in its own IPO. LogMeIn expects to offer 6.7 million shares at a price range of $14 to $16. The S-1 filing lists Prism Venture Partners (23.79%), Polaris Venture Partners (20.99%), Technologieholding Central and Eastern European Funds (15.83%), Integral Capital Partners (8.91%) and Intel Capital (5.43%) as the largest stakeholders. -

George White