NEW YORK — Two companies with quirky names, Ubiquiti Networks and Zeltiq Aesthetics, made their public debuts earlier this month with listings on the Nasdaq Stock Market. Each company’s stock went up modestly on the first day of trading.
Ubiquiti pocketed $106 million for the day, and Zeltiq made $91 million. They were the most successful stock debuts of the past two months. Then again, they were the only stock debuts of the past two months.
The market for initial public offerings, or IPOs, is experiencing a drought of Texas proportions. Companies thinking of going public are deciding it’s just too risky.
The stock market lost nearly 20 percent of its value in a month this past summer. Swings of 200 points for the Dow Jones industrial average continue to be commonplace. Getting the timing wrong for a coming-out party can mean missing out on millions of dollars.
A dried-up IPO market matters because stock debuts aren’t just a chance for tech whizzes to become overnight billionaires and ring the bell at the New York Stock Exchange. Companies use the cash they raise to expand — and that means hiring people.
And at a time when 14 million Americans are looking for work and the unemployment rate has been stuck near 9 percent for two years, the last thing the economy needs is for one engine of hiring to stall.
There are 215 companies waiting to go public. They have filed the necessary paperwork and lined up bankers, and are just holding out for the right time to release their stock. The waiting list is the longest since 2001, according to Renaissance Capital, an investment advice firm.
LogMeIn, a Massachusetts software company, went public in July 2009, raised $107 million and harnessed the cash to hire people. Within two years, its workforce expanded by a third, to 432 people. Without the IPO, the company might have added only 10 percent to its workforce, said Jim Kelliher, the chief financial officer.
“It’s cash to expand your business,” he said.
That’s how it usually works. For upstart companies, IPOs and hiring sprees go hand in hand:
• LinkedIn, the online social network for professionals, went public in May with fanfare, raising $353 million. In the three months through the end of June, it expanded its staff by 17 percent.
• Pandora, which streams music online, debuted in June. It bulked up the product development staff by 74 percent and sales and marketing by 125 percent. Pandora employed about 300 people at the end of January and now has more than 400.
• ReachLocal, an online marketing company, went public in May 2010. From the month before its coming-out party through the end of the year, its workforce grew 30 percent to 1,381.
In good times, an open door for stock market debuts can start a rush of benefits, said Steven Kaplan, a professor of finance at the University of Chicago Booth School of Business.
Venture capital firms bankroll small upstarts, like Amazon and Google, years before they go public. A successful IPO enriches the venture capital backers. They then have an easier time raising money from new investors to plow into companies that might be the next Amazon or Google.
“There’s a feedback effect,” Mr. Kaplan explained.
For profitable businesses, an IPO can also unlock the door to corporate debt markets, another source of cash that helps a company expand.
Entrepreneurs and investors describe going public as a crucial hurdle for fast-growing companies, one that keeps the Amazons and Googles of the world out of the graveyard for startups.
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