November was a busier month for the market with a total of 17 deals priced. There would have been more had it not been for an interruption for candied sweet potatoes and pumpkin pie with whipped cream. There were also 17 new filings during November so the pipeline remains about at the same level. There’s also renewed and expanded talk about the Facebook IPO.
The sharp market decline in late November may have slowed down some activity planned for December but things are picking up. Today, 10 deals are in marketing and that includes the much-anticipated Zynga (NASDAQ:ZNGA) social gaming company. We could see many more by the end of next week as companies rush to complete financings in 2011 before the holiday slowdown.
We’ve listed recent filings in the table. Some of the more interesting ones are:
ExactTarget is an online email and marketing company in the same space as Constant Contact (NASDAQ:CTCT) and Responsys (NASDAQ:MKTG). The company is growing fast and will exceed $200M in revenue this year but they are spending heavily for the growth.
Yelp (NYSE:YELP) is providing local reviews and content for consumers. It will be compared to Angie’s List, which just completed a successful IPO and has held its offer price. Yelp is still losing money too.
Vantive is a payment processor closing in on $1B in net revenue and appears to be generating lots of cash flow. It might not have colorful frosting but this might be the best cake in the case.
Smith Electric will test the appetite for electric vehicles again (see Tesla (NASDAQ:TSLA) and A123 (AONE)) but this time in the commercial segment of heavy vehicles. With negative gross margins we wonder how anyone could prefer Smith Electric to an alternative like Westport (NASDAQ:WPRT).
There were four offerings withdrawn in November (South Valley Bankcorp, Macon Financial, Muni Funding and Panther Expedited Services.)
In November our ecosystem gave back 6% after a major 13% gain in October. The top 10 names were up 21% and the bottom 10 were down 33%. November was a rough month in the market.
Many of the top performers during the month are broken stories that managed to finally meet expectations. Solazyme is getting more attention from investors thanks to strong execution. Cornerstone was up in response to the SAP acquisition of SuccessFactors (NYSE:SFSF) for $3B.
FriendFinder is flirting with zero so we may remove it from the ecosystem. IntraLinks has been in steady decline, proving that you can hype your product only so much. Pandora has suffered from a diminished appetite for risk but is starting to look interesting.
The majority of the solid IPO names marked the month with single digit gains or losses, largely hanging in during a very volatile month.
IPO Candy Folio Update
The IPO Candy Folio declined 4.9% in November versus a gain of 2.5% for the Russell 2000. The risk appetite for smaller public companies is still diminished.
Last month we made quite a few adjustments to the portfolio including three new positions, four position size increases and four eliminations. This month we are tightening our analysis criteria more and focusing on a smaller group of companies that have the best fundamentals and are the most likely to become future leaders or get acquired at a substantial premium to their current valuation.
This results in many eliminations and what is effectively a “house cleaning” for the portfolio. At the same time, cash goes from 0% to 19%. In late December we will use some of our cash for new positions and increases in a few stocks.
Intermolecular (NASDAQ:IMI), 3%, R&D productivity innovation
InvenSense (NYSE:INVN), 3%, RealVR chips
LinkedIn (NYSE:LNKD), 3%, Professional Networking
Increases - None
Reductions - None
A123 Systems (AONE): May be undervalued here but it’s a scale business where the technology matters less than we thought; still own TSLA.
Envestnet (NYSE:ENV): Nothing wrong with the business but it's too traditional in a market (wealth management) that seems to be changing fast; still own FNGN.
GenMark (NASDAQ:GNMK): We still like the diagnostic business but not enough to follow closely.
Inphi (NYSE:IPHI): Strong technology and a good management team may not be enough in a very competitive and capital-intensive business, common challenge with semiconductor companies.
Tranzyme (TZYM): There’s a real clinical need for what Tranzyme is working on but it could take years and additional rounds of capital.
TeleNav (NASDAQ:TNAV): This is still an under-appreciated story in our view, and location and navigation services remain in their early stages of growth. However, TNAV lacks the scale and leadership we look for.
QuinStreet (NASDAQ:QNST): Another undervalued Internet play but we don’t see investors putting a high multiple on these types of “content” businesses.
Renren (NYSE:RENN): There’s lots of opportunity in China but we are prepared to leave that to others to evaluate and follow.
Pacific Biosciences (NASDAQ:PACB): There’s lots of opportunity in genomic science but the larger firms seem more likely to capitalize at this point.
SPS Commerce (NASDAQ:SPSC): This has been a good story and the stock has traded up to exceed our IV. Management is OK but not strong enough to keep this one.
More information and disclosures regarding the IPO Candy Folio can be found here.
We’ve updated the pipeline for new filings and priced deals. The total still stands at about 115 deals.
See the IPO Candy Ecosystem Pipeline table for more details.
Coverage and the Calendar
This month we will see banker coverage for Groupon and Imperva, followed by NewLink, Clovis, InvenSense, Delphi, Angie’s List, Digital Domain, Intermolecular, Manning & Napier and Mattress Firm at the very end of the month.
Lockups coming off this month include Fusion-io, Taomee, Pandora, Bankrate, KiOR and HomeAway.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.