Opportunity knocking as Canadian tech IPO window opens

It’s enough to make an investment banker cry in his Grey Goose Martini.

Here we are in February 2010, and the Canadian tech IPO window is open for what is just the third time since 2003. Why is that a problem? ‘Cause there’s not enough product to launch onto the market, that’s why. Painful is the word. The local tech i-bankers haven’t had the decade that their mining or oil & gas colleagues have enjoyed, which makes the dearth of product all the more annoying for our tech friends throughout the Street.

The cream of the class of 2007 tech IPOs are showing some good signs. Dragonwave (DWI-TSX) is up strong, for example, even on the heels of raising US$130MM with their Nasdaq listing. Bridgewater (BWC-TSX) is up some 200% from the low. It’s no wonder that institutional investors are prepared to hear new stories. Some have already tapped the market: Biodiesel story Biox (a Wellington Financial Fund III portfolio co.) raised $50 million a few weeks ago for its IPO, co-led by Clarus Securities and TDSI, and is expected to start trading later this month (see prior post “Biox looks set to raise $50 million in IPO” Nov 28-09 and “Biox makes it on BMO’s Market Predictions list” Jan 21-10). Biox is backed by Birch Hill Private Equity Partners and VentureLink.

Unfortunately, there just aren’t that many new stories for investors to hear. The two obvious choices from last Fall may well sit this one out, it appears: Montreal’s RadialPoint and Vancouver’s Vision Critical, the latter being a WF Fund III portfolio co (see prior post “CDN tech IPO market stirring to life” Aug 20-09). Other candidates, such as Montreal’s OZ Communications (also a WF Fund III portfolio co.) were acquired by mega strategics before an IPO could even be contemplated (see prior post “Nokia buys OZ Communications” Oct 1-08). To be sure, there are some names in the queue. I suspect we may see Alberta’s fav tech firm, a well known Toronto-based VC-backed chip story and a couple of U.S.-based software players before the golf season is in full swing.

But there certainly aren’t many private tech companies of the size, scope and quality to make for much of a capital markets onslaught. Which, ironically, only makes the IPO window all the more “open” for those who have what it takes to launch in the coming months. Scarcity value has always been a factor in the stock market, and the fact that mutual fund portfolio managers know that they won’t see 10 tech IPOs this year means that they have to look all the more carefully at the roadshows that do make the rounds. (Just to be clear, we’re not talking about $3 million RTO IPOs on the TSXV.)

Which may present entrepreneurs and their VCs some pricing power.

If you’ve got a great story and are sitting on the fence, just remember one thing. RIM wouldn’t be the company it is today if it had stayed in the world of privates.

MRM
(disclosure – our Fund III owns warrants in Biox)