Wall Street's firmament these days is being dotted by increasing numbers of fledgling companies, many of them with a high-technology cast, that are taking advantage of the booming market to offer stock to the public for the first time.
Since the first of the year, 312 companies have gone public, selling a record $5.6 billion worth of common stock, compared with $3.3 billion worth of stock issued by new companies in all of 1982, according to New Issues, a newsletter that follows the market for new stock issues.
"The numbers for the first six months are unbelievable," says Sanford Robertson, a partner in Robertson Colman and Stephens, a San Francisco investment banking house that is one of the leaders in taking new companies' stock public.
Entrepreneurs and investment bankers say the wave of new issues, and the wealth of money that investors are willing to plunge into them, is nurturing a group of companies that in a few years will be key members of the nation's business community and the Fortune 500. Their industries are seen as the nation's best hope for an industrial base to replace Smokestack America.
"These issues that we back . . . represent the hope for the future of the country," says Ian Zwicker, managing director of Hambrecht & Quist, the San Francisco brokerage whose name has become synonymous with the financing of high-technology companies.
The wide slate of new public offerings "is good for the economy and for business in general. . . . It enables you to finance new technology," says I. A. Feingold, president of Daisy Systems, a pioneer in the new field of computer-aided engineering that went public earlier this year. "It enables companies like Daisy to bring a whole new industry to the attention of the public."
At a time of increasing clamor for a national industrial policy to encourage--through government intervention--the formation and growth of new high-tech industries, experts say the new-issues boom already is generating activity.
"In the past couple of years, we've heard a lot about things like tax incentives to get capital formation going," says Norman Fosback, publisher of the New Issues newsletter. "But in the final analysis, there's nothing like a bull market to get it all going."
John Wadsworth, managing director of Morgan Stanley, the New York investment banking and brokerage house that has been a key factor in the new issues market, says the concept of government-inspired industrial policy "is quite contrary to what is happening in the high-tech field. Opportunities are channeling resources."
And Ralph K. Ungermann, president of Ungermann-Bass Inc., a maker of computerized communications systems that recently went public, says, "I think this is the market acting on its own, based on pure capitalism."
The last time the stock market went this wild over new issues, experts say, was the boom of the late 1960s, when it seemed like anybody with a good, marketable idea--and even some who didn't have one--was issuing stock. More than 1,000 companies went public in 1968, at the peak of the boom, a number that even this year's wave of new offerings is not expected to match.
But investment bankers and market-watchers say this new-issue boom is different. As Wadsworth puts it, "The average quality of companies this time around is better."
That's considered one of the key reasons behind the boom. Although experts say the rush of new companies into public offerings is in part a function of the overall rise in stock prices, which makes it easier to raise capital through a stock offering, they say there is also a coincidental glut of excellent companies ready to go public.
And they trace that to two factors, observers say: the technology explosion of recent years, and changes in the investment patterns of large institutional investors such as pension funds and insurance companies.
With computers becoming commonplace and biotechnology moving out of the laboratory and into the market, high-technology companies seem to be starting up right and left.
Recent new issues have included computer-equipment companies like Televideo and Apollo Computers, computer-services or software companies like Telerate, medical-diagnostics companies such as Diasonics, and biotechnology companies like Biogen.
These companies, getting their start in such high-tech spawning grounds as Silicon Valley a few years ago, have been growing by way of private funding from venture-capital firms, many of which have also led the rush to take new issues public. But the availability of venture capital in the past couple of years is unprecedented.
"These companies have grown faster than they normally do because five years ago . . . there were huge injections into the venture-capital market," Robertson says. "That's why these things have developed better--they've been well-capitalized from the beginning."
Experts trace the torrent of venture capital to institutional investors, who have both focused on high-tech companies as a chance to get an excellent return on an admittedly risky investment and have also taken advantage of changes in laws that have made it easier, particularly for pension funds, to take flyers in the venture-capital market.
It is estimated that institutions will pump $2 billion in venture capital into new companies this year, 10 times the figure of just a few years ago. The steady stream of venture capital in the past couple of years has enabled newly started quality companies to stay afloat through economic hard times, and has made them particularly hardy now that they are ready to go public.
Those seedlings financed a couple years ago by the venture capitalists are the companies now flooding the new-issues market.
"The time has come" for these companies, Feingold says. "It's like when you get to a certain age, you have a bar mitzvah. . . . This is the season for the baby boom of 1981."
But despite the economic health of the companies now hitting the market, investment bankers say they look beyond the balance sheet when they decide to take a company public. Other factors are the quality of its management, the products the company offers, and its growth potential.
"The quality of the people is first and foremost. You're betting on the people," says Zwicker, who adds, "If a company is not growing at 30 to 50 percent a year, or isn't showing the potential to grow 30 to 50 percent a year, we're not going to take them as a client."
To be sure, not all companies being brought to market are well-financed, well-managed, trouble-free winners. Although experts say the early wave of new issues brought many excellent companies to market, it also picked up some flotsam and jetsam. And as long as the boom continues, they say, the level of quality is likely to decline.
"We're seeing some lesser quality companies come to market, and that worries us," Robertson says. "Investors already are being selective."
But what happens when the boom ends? Quality or no, many analysts believe many recent new issues have had price run-ups in excess of their actual value. In the inevitable market correction, those prices are apt to come tumbling down.
Although the prices of most good companies will not fall very far, others could skid precipitously, endangering investors who have injudiciously jumped on to the new-issue bandwagon.
Experts say the end of the stock-market spiral will also snuff the new-issues boom, forcing companies that hadn't yet had a chance to catch the wave to wait for the next one to come along, or to venture into a more tepid market.
But such risks, to companies and investors alike, are an integral part of the new-issues market. Although not as risky as the venture capital market, where a ratio of 10 failures to one successful company is not unusual, the new issues game has its pitfalls.
However, says Fosback, the chance to catch a big winner can offset the considerable risk. "That's the great speculative appeal of the new-issues market," he said. "It's one of the few areas left where an investor has a realistic chance of turning $1 into $100--or losing it and turning $1 into one penny . . .
"There really is the opportunity to buy the IBM of the future."