For four years, companies hoping to sell stock to the public for the first time have found the doors all but shut. Stung by the dot-com disaster, shareholders were not buying and young companies stopped trying.
Now the doors are opening a crack again. More initial public offerings were completed in the first seven months of this year than in any of the previous three years.
There is more to the resurgence than the approaching market debut of Google Inc. Successful offerings by Blackboard Inc. of the District and TNS Inc. of Reston have reverberated through the Washington technology community.
Investors considering the new IPOs might draw some lessons from the boom years.
In 1999, a high-water mark for local IPOs and the midpoint of the Internet stock bubble, 21 companies in Maryland, Virginia and the District went public. Nearly all were enthusiastically received by investors, at least at their starts.
Six are no longer in business, seven were sold and eight continue to operate as stand-alone businesses.
The dot-coms among them had the worst survival rate. Many of those still alive struggled with layoffs and disappointing earnings. A few tossed out their original business strategies and aimed for different markets. Some just disappeared.
"What happened, as '99 wore on, is that the bar got lower and lower," said Raul J. Fernandez, founder and former chief executive of Proxicom Inc., a Reston-based Web development company that went public in 1999. "It was a unique moment in time, the good and bad did get to go out. And the companies that had good fundamentals were acquired or are still around."
Among the surviving IPOs of 1999, the most successful -- Corporate Executive Board Co., Trex Co., XM Satellite Radio Holdings Inc. and United Therapeutics Corp. -- have one thing in common: limited dependence on the Internet.
Most have old-fashioned business models. They offered tangible products or services, and they collected tangible payments in return.
Take two companies in the old-line business of radio, Radio One Inc. of Lanham and XM Satellite Radio of the District.
Radio One owned 26 stations targeting minority listeners when it went public under the command of Catherine L. Hughes and her son Alfred C. Liggins III. Radio One raised $152.2 million through its IPO in May 1999, and its stock price rose 40 percent in the first day of trading.
Such first-day pops, some of them far bigger, were typical in 1999. Unlike many companies with similar debuts, though, Radio One continued to grow. The company now owns more than 65 stations and posted a $53.8 million profit on $303.2 in revenue for 2003.
XM's plan was riskier. The company had no customers and no revenue when it went public in October 1999. But it had a product consumers and investors could understand: dozens of commercial-free radio channels beamed into a car for a monthly fee.
"We were offering a unique entertainment product," said Hugh Panero, XM's president and chief executive. "That really resonated with investors."
XM raised $120 million from its IPO. Two years later, the company launched its product, a $10-a-month radio service. So far, 2 million customers have signed up. But despite strong revenue growth, XM is unprofitable. In 2003, it lost $585 million on revenue of $92 million.
Few biotechnology companies ever develop a marketable medicine and fewer still are profitable. So United Therapeutics Corp. of Silver Spring did everything it could to minimize risk to investors, waiting until it had several drugs in advanced human testing before it went public. "The risk of failure falls the further you go along, and we were pretty far along," said Fred T. Hadeed, chief financial officer.
One of the company's experimental drugs, a treatment for a rare lung disease called pulmonary arterial hypertension, won federal approval in 2002. Sales soared from $5.7 million in 2001 to $53.3 million in 2003, 90 percent of which came from the treatment, called Remodulin. Hadeed predicted that the company will become profitable this year.
One of the few Web-based companies to survive, Online Resources Corp., still feels the dot-com stigma.
The McLean banking and bill payment company, founded in 1989, moved its services to the Web as consumers began to use the Internet. Still, when it went public in June 1999, investors and analysts criticized the company for being too rooted in "old economy" ways, chief executive Matthew P. Lawlor said.
"Then it was a land grab -- sign as many banks as you can. Paint as pretty picture as you possibly can," Lawlor said. Online Resources' public offering was less than stunning; the company raised $38.5 million selling stock at $14 a share.
After the bubble burst, Online Resources was grouped with other dot-coms, Lawlor said. He spent much of his time convincing clients that it was not on the verge of extinction.
"I shouldn't ever be one to complain about the Internet bubble, but when it did bust it could be very demoralizing," Lawlor said.
Online Resources reported an 18.5 percent increase in revenue and a $2.8 million profit last year, but the company never fully rebounded. Its stock closed Friday at $6.30 a share.
The IPOs of 1999 that failed lacked one feature: paying customers.
LifeMinders Inc. sent users e-mail messages to help them keep track of their busy lives. In classic dot-com style, the company did not charge for its services, relying instead on advertising for revenue. With 3 million users and no profit in sight, the Herndon company went public in November 1999. Its stock debuted at $14 a share and rose 60 percent on the first day of trading. The company raised $58.9 million through its IPO.
The company bought a pricey Super Bowl ad, held a secondary offering that raised $86 million in February 2000 and announced plans to acquire a wireless messaging company for $24 million -- just a month after posting a $13.7 million loss for the second quarter of 2000.
Then the online advertising market crashed. Advertising revenue, which reached $17 million in the third quarter of 2000, fell to $2 million by the second quarter of 2001. "The bottom just totally fell out," said Alison H. Abraham, the company's former president. "It was clear we could no longer operate as a stand-alone business."
By January 2001, the company had ousted its founder and chief executive, begun layoffs among its staff of 200 and told investors it was dropping its efforts to enter the wireless sector. Its loss ballooned to $70.5 million in the last quarter of 2000.
LifeMinders' stock traded at just over a dollar during the summer of 2001, and the company's headcount dwindled to 30. In October of that year its assets were acquired by New York-based Cross Media Marketing Corp. in a cash and stock deal worth about $58.1 million.
Value America Inc., a Charlottesville online retailer that raised $126.5 million in an April 1999 IPO, suffered a similar fate. The company's goal was to become the Wal-Mart of the Internet, a one-stop shop where people could buy anything and everything.
Shares of its stock started trading at $23 and were driven up to $55.18 on the first day of trading before slipping into the teens within two months. Sales did not keep pace with investments in marketing and staff. The firm lost $143.5 million in 1999.
In August 2000 Value America filed for Chapter 11 bankruptcy protection. Its assets were sold in November 2000 for $2.4 million.
MusicMaker.com Inc. raised $67 million in its initial public offering. Its business plan: Customers could pick songs from a Web site, then employees would copy them onto compact discs to be mailed to the buyer. During its first year on the market, the company's stock hit a split-adjusted high of $239.
While MusicMaker.com paid record companies to use their songs, Napster and other file-swapping programs popped up, ignoring the rules and providing free instant access to music.
In January 2001, MusicMaker's shareholders voted to liquidate the firm. After selling much of the company's equipment at auction, MusicMaker announced that it would distribute $3 a share.
Not all companies died in dramatic flameouts. CAIS Internet Inc., which initially sold broadband Internet service to hotels, lost $354 million during fiscal 2000. It began selling parts of its business, rotated through three chief executives and in July 2001 changed its name to Ardent Communications Inc.
With less than $1 million in the bank, the District company filed for Chapter 11 protection in October 2001 and slowly began to sell its assets. The Hong Kong company that bought a list of old CAIS e-mail subscribers shut down the service in January this year.
Thriving or dying were not the only alternatives. Some in the IPO class of '99 were acquired.
Proxicom, for example, is still in business, though it bears little resemblance to the firm that went public five years ago. The Web development company was already one of the Washington area's brightest stars when it raised $57.3 million in an April 1999 IPO.
After winning a bidding war with Compaq Computer Corp., South Africa-based Dimension Data acquired Proxicom for $448 million. For the firm's original employees and stockholders who cashed out it was a big payday. Founder Fernandez has said he grossed more than $210 million during his time with the company.
But demand for its online business services plunged soon after the sale. Its workforce dropped from 2,000 employees to fewer than 150. In March it was sold to Gores Technology Group LLC, a buyout firm based in Los Angeles. In June Proxicom announced that it readopted its old name and brand.
CareerBuilder Inc. is no longer publicly traded, but the online recruiting company still exists. The Reston company was acquired in July 2000 by newspaper chains Knight Ridder Inc. and Tribune Co. for about $250 million and acquired one of its biggest competitors, HeadHunter.net, for about $200 million in late 2001. Gannett Co. joined Knight Ridder and Tribune in October 2002. Today CareerBuilder is a help-wanted portal for all three newspaper companies.
An expensive acquisition also paid off well for investors of AppNet Systems Inc. The Bethesda company, which builds e-commerce systems for businesses, was bought by Commerce One in June 2000 in a stock deal then worth about $2 billion.
"We were one of the rare companies that got out before the market came down," said Ken S. Bajaj, AppNet's founder.
"There were a few people who threatened to sue me because they thought it was too cheap," Bajaj said. He doesn't hear that anymore. In late 2001, with demand for online services plummeting, Commerce One began carving up AppNet's assets for resale.