Public Offerings Dry Up as Investors Seek Sure Bets.

THE window for initial public offerings is shut tight -- not a single Los Angeles-area company has gone public so far this year.

The window will eventually reopen, of course, but the type of companies issuing stock in the near future will be decidedly different than those that issued stock last year, several industry observers agreed.

"It's going to come down to companies with great fundamental values that will have traction in the IPO market," said David Cremin, founding partner with L.A.-based Zone Ventures, "They'll be able to last through shaky markets, and they'll raise money to expand, not just to operate."

So when will the local IPO window reopen?

"We aren't anticipating seeing a lot of fastmoving IPOs until 2002," said Cremin.

During the mania of 1999 and early 2000, a company could go public with just about any amount of revenue and, in some cases, spectacular losses.

"The requirements to take a company public (today) have been ratcheted up," said Todd Springer, managing director of Trident Capital Inc. "Companies will need at least $5 million to $10 million in revenues for the most recent quarter, and they'll need to reach a break-even point at least within the next two or three quarters after the IPO."

The era of early-stage tech startups going public has vanished, at least for now.

"Public markets were taking VC risk without understanding that risk," Springer said. "The average public investor is not well-equipped to invest in startups. You had public companies with startup attributes that couldn't benefit from the stewardship that the VC community would provide."

Indeed, many of the poor performances of recent IPOs have to do with shortsighted management teams that viewed the IPO as an "endgame."

"There was a tendency for young entrepreneurs to view the IPO as a strategic exit, which it's not," Springer said. "It's a strategic financing event. You still have to execute. It's what you do with the money that makes a successful company. I think people forgot that."

Bargain hunting

Until the IPO window reopens, institutional investors will be content to pick through the batch of recent IPOs in search of new ideas, said Byron Roth, CEO of Roth Capital Partners.

"There are so many beaten up public companies that were IPOs, and now institutional investors are looking through the rubble," Roth said. "You're going to have to see some recovery in public markets before we get to the next step, where we need new ideas. Right now, institutional investors are looking for new ideas from companies that are already public."

But the institutional interest is there.

"They're looking for ideas," Roth said "They're looking for companies that can still grow in this marketplace. They're not necessarily looking for the next world-beater. They're looking for things that will grow more incrementally, and they're more conscious about risk than they were before."

But they will find it difficult to ignore cutting-edge tech companies in L.A., said Cremin.

He pointed to Estyle.com, Vizional Technologies, 3GA Corp. and Hiwire as examples of L.A.-based companies in his firm's portfolio that meet the tougher standards of today's IPO market.

Meanwhile, the current crop of L.A.-based IPOs is a mixed bag in terms of stock performance.

Of the 12 local companies that have gone public since January 2000, all but one -- California Pizza Kitchen Inc. -- is a technology company, according to IPO Monitor, a research firm that tracks securities offerings.

Capstone Turbine Corp. is one of the better-performing local IPOs. The Chatsworth-based company's stock value as of last week was 62 percent above its offering price, thanks to the prospect of soaring energy costs. Capstone makes "microturbines" for on-site power production, also known as distributed power generation.

The company went public on June 29 at $16 per share and shot up to $27 on the first day of trading. It was trading at about that same $27 level as of last week, after having soared as high as $98.50 late last summer.

While investors seem intrigued by the promise of Capstone's technology, the company's financial results seem less compelling. The company reported a net loss of $6.3 million (84 cents per share) for the fourth quarter ended Dec. 31, compared to a net loss of $11.7 million ($13.56 per share) for the like year-earlier quarter.

Its fourth quarter revenues were $7.1 million, up from $5.3 million in the like year-earlier quarter.

The top-performing local IPO is Santa Monica-based Specialty Laboratories Inc. The research-oriented clinical laboratory, which tests patients' specimen for diseases, went public last December and its stock value as of last week was 90 percent higher than its initial offering price. Its stock is one of the more volatile of the L.A. IPOs, possibly due to the peaks and valleys in its quarterly revenues and earnings.

The odd man out, California Pizza Kitchen, has seen the value of its shares rise about 70 percent since the August offering. The L.A. company's rising earnings continue to wow Wall Street. It reported net income $3.2 million (21 cents per share) for the fourth quarter ended Dec. 31, compared to a net income of $1.7 million (44 cents per share) in the like year-earlier quarter.

The region's worst-performing IPOs hail -- not surprisingly -- from the Internet sector. ArtistDirect Inc.'s stock value has fallen 95 percent. As of last week, it was trading for about 50 cents a share and it has received a delisting notification from the Nasdaq National Market. The online music company said that it is seeking shareholder approval for a 1-for-S reverse stock split to yank its share price out of troubled waters.

Close on its heels is L90 Inc., a provider of Internet-based advertising and direct marketing for advertisers and Web publishers. The Marina del Rey company saw its stock value plummet 84 percent from its initial offering price. Last week it was trading at around $2 per share.

Another weak performer among the recent IPOs is fiber-optic component maker Luminent Inc. The Chatsworth-based company's stock value as of last week was down 64 percent from its November offering price of $12.