DealZone

OpenTable will try to revive VC-backed IPOs

February 3, 2009

restaurant

Venture capitalists wanting to take portfolio companies public have fallen on hard times. So they will be watching closely when online restaurant reservation service OpenTable, which filed for a small $40 million IPO last week, attempts to price its deal.

Last year only six companies backed by venture capitalists went public, according to Thomson Reuters data, a far cry from the 86 in 2007. And none has performed well in the aftermarket.

But San Francisco-based OpenTable, whose IPO will be led by Merrill Lynch and whose backers include VC firms Benchmark Capital and Impact Venture Partners, is betting that its recently growing business will lure investors.

It also has an A-list of directors. Its CEO is former PayPal president Jeffrey Jordan, and one of its directors is Danny Meyer, the restaurateur behind New York eateries such as Union Square Café and burger joint Shake Shack.

According to its SEC filing, revenues totaled $41.3 million in the nine months ended Sept. 30, 2008, up 41 percent over the same period in 2007. It has now seated 90 million diners since it began in 1998 (then known as easyeats.com) in the 10,000 restaurants in foodie-populated cities like New York, San Francisco and Toronto that use its service.

So far, so good. But in its filing it bluntly cautions, “Our recent growth will likely not be sustainable.” Culprit number one: the recession.

People have a habit of eschewing $30 entrees when they don’t know if they’ll have a job next week, and higher-end restaurants in particular have been reeling.

OpenTable estimates that overall reservations at the restaurants it serves fell between 10 percent and 15 percent in the last three months of 2008 from the year-ago period. Even the National Restaurant Association sees sales across all types of restaurants only rising by 1 percent in 2009.

But VCs will be hoping this IPO, which could come as soon as three to four months from now, does better than the last VC-backed tech company to go public: Rackspace Hosting. Its shares are down 62 percent off their offer price since their August debut.

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