homesmillbrae.com » Optimists

Zynga’s IPO flop could hurt some Silicon Valley startups

Mon, 26 Dec 2011 04:12:55 +0000

Zynga’s unexpected IPO flop this month could be bad news for other Silicon Valley startups.

With buzzed-about social media companies having failed so far to make a lasting impression on Wall Street, the bar for going public is likely to remain high. That could dampen the wealth-generating effect a raft of initial public offerings can have on Bay Area employment, housing prices and luxury auto dealerships.

And if venture capitalists can’t take their portfolio companies public, they’ll have to find buyers for them or consider less attractive alternatives: Feed them more cash, pull the plug or let them die a slow death.

“There are going to be a lot of ‘walking dead’ startups that can’t close that third or fourth funding round,” said Tim Young, founder of San Francisco social networking startup Socialcast. The company, which sells Facebook-style collaboration software to corporate clients, was acquired earlier this year by VMware.

Not everyone agrees a zombie invasion is around the corner. After all, they note that venture capital firms still have cash to invest.

“I haven’t been this busy in a decade,” said Curtis Mo, a securities lawyer at DLA Piper’s Silicon Valley offices.

Still, even the optimists concede that the valley’s mojo could weaken in the new year absent improvements in the broader economy. That could

hurt startups that have garnered a few million venture dollars but can’t find a willing buyer and are still far from IPO-ready.

“I think it’s a real possibility,” said Mike Smerklo, chief executive of San Francisco-based Service Source, which went public in March before the stock market went sideways. Smerklo, a former investment banker, hearkens back to the dot-com bust and notes: “As soon as the public market investor starts to pull back, it has that ripple effect on the whole funding cycle.”

Smerklo said it may be more appropriate for many companies to stay private in such an environment — provided they can carefully husband their cash. “I’d be looking for alternative sources of funds, and I’d be realistic about valuations,” he said.

One such alternative is Industry Ventures, a San Francisco firm that invests in venture-backed companies whose original backers are getting antsy for a return. “We have seen an uptick this quarter,” said founder Hans Swildens, “and we also see an uptick for next quarter. It’s natural that our market sees more deals in times like this.”

Swildens said his firm is getting more calls from venture capital firms that raised funds over the past decade and are running out of time to show returns to their outside investors.

Nationwide, Swildens said, “There are 65 tech companies on file to go public, and it’s pretty clear all these guys are not gonna be able to go out.” Those that can’t find a buyer or aren’t profitable enough to stay private may be forced into deeply discounted takeovers by buyout firms.

In addition, he noted, “All these seed and ‘angel’ funds backed thousands of small companies, and now they all need series B rounds, and there’s not enough capital to fund them. A lot of those companies are probably not going to make it.”

Although Zynga’s tepid reception on Wall Street was surprising, given the buzz around the company and its $1 billion in yearly revenue, it was also in keeping with recent history.

Birinyi Associates, a money management and research firm in Greenwich, Conn., notes that of the 31 Internet and social media companies that have gone public since the beginning of last year, 19 are trading below their IPO prices. Zynga, which opened at $10 a share on Dec. 16, closed at $9.39 on Friday.

And many of the ones that have managed to stay above that line, including LinkedIn and Groupon, finished Friday well below their first-day closing prices.

It’s little wonder that the National Venture Capital Association recently reported that VC optimism about the IPO market was on the wane.

A recent forecast from PricewaterhouseCoopers was more bullish, predicting that the $1 billion Zynga raked in through its stock sale despite a lackluster reception from retail investors would encourage more companies to go public in 2012.

But the report also noted that a number of companies shelved IPO plans in the fourth quarter of this year. And the $6.4 billion raised via U.S. initial public offerings during the quarter was just a fraction of what companies raised by going public in the same period a year ago.

Ken DeLeon, a broker with Keller Williams Realty in Palo Alto, expects that many startup employees planning to buy new homes on IPO riches will have to think again in the wake of Zynga’s flop. That could lead to fallout for nontechies as well.

“I think it will dampen” the housing market in most parts of the valley, he said.

That said, the biggest IPO looming on the local radar — Facebook’s — should keep demand robust in Palo Alto, Mountain View and Menlo Park, where DeLeon said he’s sold a whopping $270 million worth of homes this year.

Many employees of the social networking giant have money to burn, thanks to secondary markets for private stock that have enabled them to offload some of their holdings. And, said DeLeon, “Normal people are buying in fear of the Facebook IPO and trying to get out in front of it.

“This little microclimate of Palo Alto and Menlo Park will fare better than others,” he said. “But even Los Altos and other nearby markets are starting to soften.”

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.

STOCK PRICES Fall

Internet and social media companies that went public since the beginning of last year, according to Connecticut-based research firm Birinyi Associates.

Of those companies, more than half are trading below their IPO prices, including Zynga, which opened at $10 on Dec. 16 and closed at $9.39 on Friday.

Article source: http://www.mercurynews.com/business/ci_19618020?source=rss

Hope in housing gap

Mon, 17 Oct 2011 00:16:59 +0000

Twenty-nine cents on the dollar.

That’s what homebuyers now pay for a typical house in the Sacramento region compared to buyers in San Francisco. And if history is any guide, that mounting price gap could have a big impact on Sacramento’s housing market and economy in the not-too-distant future.

The last time the spread between Bay Area median prices and Sacramento median prices grew so big was a decade ago, just before tens of thousands of Bay Area transplants arrived in Sacramento, turning a healthy housing market into a bona fide boom.

Since then, that wave of transplants has slowed to a drip, with barely more residents relocating from the Bay Area to Sacramento than heading in the other direction.

Several local real estate experts and economists said they don’t expect to see another approaching fleet of U-Haul trucks quite yet, with the possible exception of a few being driven by carefree retirees.

“It’s a different market now,” said Suzanne O’Keefe, a Sacramento State economics professor. “Everyone is more cautious. The housing market isn’t going to rebound quickly because people move from the Bay Area.”

O’Keefe and others note that the local job market is stalled; cheap housing is available elsewhere; and many Bay Area residents already cashed out home equity during the boom. Just as key: Bay Area home prices are less expensive than they have been in years. A San Francisco condo worth $1 million in 2005 would sell today for about $840,000.

But even if Bay Area transplants aren’t about to swoop into Sacramento tomorrow on white horses, many expect their numbers to increase, helping to put a floor on falling home prices. To bolster their case, these optimists point to past trends.

The San Francisco and Sacramento housing markets are closely entwined. Growing price differences between the two areas preceded and fed the last two housing booms.

The calculus is simple: Bay Area residents see their modest homes sell for immodest prices, and decide to cash out and buy quasi-mansions in Sacramento.

Right now, the median home price in the Sacramento region is about $185,000, according to data from Wells Fargo and the National Association of Home Builders. In San Francisco-Marin-San Mateo, it’s $630,000. In the San Jose area, it’s $454,000.

David Bicknell, the local franchisee for Intero Real Estate Services, is putting money behind his premonitions of a coming influx. His company recently opened offices in Folsom and El Dorado County and plans more expansion.

“More and more people are able to move to the Sacramento area,” Bicknell said.

Influx of equity-rich retirees seen

Bicknell is encouraged by the local tech sector, which he believes is rebounding.

Intel Corp., one of the local region’s largest private employers, recently hired 368 new workers at its Folsom campus, reversing more than a decade of downsizing.

The new hires increased Intel’s local workforce by about 6 percent to 6,515 workers. Many are recent college graduates who have relocated to the region, the company said.

Tech company Bloo Solar of El Dorado Hills plans to hire another 40 or so workers over the next several years as it expands its solar manufacturing plant.

“We see this as a continuing trend,” Bicknell said. “The homes are nice, the schools are good, and the cost of living is so much lower.”

Retiring Bay Area baby boomers are just as important to Bicknell’s strategy.

The last generation of retirees largely drove the big influx from the Bay Area to Sacramento 10 years ago. The town of Lincoln quadrupled in size during that boom, partly because of senior citizens arriving from places like Santa Clara County.

Assuming they have a pocket full of cashed-out equity, retirees might not worry as much as others about Sacramento’s difficult economy.

“There’s a lot of potential out there for the active adult market,” said Dean Wehrli, a senior manager at John Burns Real Estate Consulting. “That part of the market is increasing, and it’s going to be like that for 20 years.”

Granite Bay Realtor Eve Fenstermaker said she has noticed more interest from prospective Bay Area buyers since last spring. She gave the example of a client who lives in the exclusive Blackhawk area of Contra Costa County. Two years ago, the woman balked at moving because of declining prices in her neighborhood ? and corresponding lost equity. With prices recovering, she is considering Sacramento.

“If you can sell your house in the Bay Area for $900,000 and can buy a comparable house here for $725,000, why wouldn’t you do it?” Fenstermaker said.

Douglas Booher, a 34-year-old Southwest Airlines pilot based in Oakland, recently looked at several homes in Folsom and El Dorado Hills. He likes the schools and the proximity to Lake Tahoe.

“If we can live in Sacramento in a nice home ? maybe not our dream home, but a nice home ? then we will have more money left to play with,” said Booher, who rents in Clayton and spends much of his time on the road. “It’s worth the two-hour drive once a week.”

Falling prices frighten many buyers

Several economists, though, cautioned that new residents like Booher will likely remain anomalies in the near term.

Many Bay Area homebuyers are scared by Sacramento’s falling home prices, seeing the market as risky. Before the last two booms, the real estate markets in both the Bay Area and Sacramento region were relatively stable. Today, the Bay Area is recovering faster than Sacramento.

Despite that recovery, home prices in San Francisco are still at 2004 levels. (They are at 2000 levels in Sacramento.) So a lot of Bay Area residents aren’t feeling priced out of the market, unlike during much of the housing boom.

Other Bay Area residents bit the poison apple and refinanced during the boom, leaving them underwater on their mortgages and unable to pull out equity for homes here.

“Even if you have plenty of equity left, you might want to wait a bit” until the market stabilizes, said Jeff Michael, an economist at the University of the Pacific.

For those without much cash, a move to Sacramento can be tough, largely because of the tight job market.

Unemployment in the Sacramento region has hovered at 12 percent for more than a year, roughly three percentage points higher than the rate in the San Francisco-Marin-San Mateo area.

Affordable housing doesn’t mean much to working families if it doesn’t come with employment.

Some, like Booher, might choose to live here on the cheap and commute to San Francisco. But home prices are also low in places closer to the bay, like Vacaville and Fairfield. Why commute from Sacramento when a shorter drive is available?

“Some of that underbrush has to clear first” before extreme commuters start coming here, said Wehrli.

Those obstacles are immediate, but likely transitory, said economist Stephen Levy. The Bay Area and Sacramento have danced to this tune before, and they’ll probably one day dance to it again.

During the last boom, Levy noted, people felt priced out of the Bay Area and moved here. Likewise, many Sacramento residents felt priced out here and moved to even-cheaper places like Texas.

The last several years, then, have marked a massive, dramatic, painful correction, said Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

When the dust settles, if people from the Bay Area ? or anywhere ? think housing costs have gotten too high in their community, there’s a good chance they will look to places like Sacramento.

And that’s a selling point for the region, he said.

“This makes the Sacramento region more competitive,” Levy said. “If I was a leader in Sacramento, I’d be talking to businesses about how their workers can afford to live here.”

Call The Bee’s Phillip Reese, (916) 321-1137.

Article source: http://www.sacbee.com/2011/10/16/3983170/hope-in-housing-gap.html