LinkedIn, the Silicon Valley-based business networking site that I'm sure many of you belong to, is preparing a boffo initial public offering this week - way larger than originally planned - and it's already feeding the narrative that California's tech business is back in a big way. Actually, there's been evidence of a strong bounce in the Bay Area for several months, punctuated only yesterday with word that the state has received $6.6 billion more in tax revenue than was projected. Why the extra money? Presumably because tech entrepreneurs and investors are cleaning up. And while LinkedIn is considered an especially hot IPO, it's hardly the only one in the state. Ernst & Young's first-quarter survey of public offerings has California leading the way in the number of companies seeking IPO money, at 25. (Texas has fewer offerings, but is looking for more money.) From the Ernst & Young press release:
"We expect to continue to see robust IPO activity from private equity sponsors as they work both to de-lever and initiate the process of exiting their portfolio companies acquired in the last five years," said Jackie Kelley, Americas IPO Leader, Ernst & Young LLP. "Investor appetite for PE-backed offerings has been tested and reinforced over the last several quarters."
Certainly, venture funding has been stronger as of late, though investors like Netscape founder Marc Andreessen have been selective. From the WSJ:
The onslaught began last August, after Mr. Andreessen--along with partners Ben Horowitz and John O'Farrell--drew up a "harpoon" list of companies to target. Over a six-month period, Mr. Andreessen tapped his formidable network of Silicon Valley connections to snag stakes in Facebook Inc., micro-blogging service Twitter Inc. and deals-site Groupon Inc. Other investments include social-game developer Zynga Inc. and Internet-telephone company Skype SA. In the process, he helped to ignite Silicon Valley's latest Web boom and the burgeoning market for private-company shares. "We wanted to get these deals done because we had a strong feeling [the market] would heat up fast," says Mr. Andreessen, who heads the firm Andreessen Horowitz. "When push comes to shove, would you rather be in the winners?"
Unlike the dot-com boom that touched--then burned--ordinary investors a decade ago, the current investing frenzy is largely confined to a clubby world of big-money financiers with access to companies like Groupon and Twitter. Mr. Andreessen enjoys a prime place in this Silicon Valley nexus, commanding board seats at Facebook, Hewlett-Packard Co. and eBay Inc. among others. He is also known for mentoring famous charges--including Facebook CEO Mark Zuckerberg.
The problem with trying to mark an economic trend is that the facts tend to get in the way. Bay Area home sales, for example, slipped to a three-year low in April, and the median price fell year-over-year for the seventh consecutive month, according to Dataquick. But there was an increase in the portion of homes bought with adjustable-rate and "jumbo" loans, which are often used in the purchase of higher-priced properties. See the problem? Perhaps the interest in LinkedIn, along with the unexpected tax haul, reflect the start of something much bigger. And perhaps not.