Seattle-based Amazon (NASDAQ: AMZN) said today its acquisition of online apparel and shoe seller Zappos, based in Las Vegas, has closed. The Zappos management team will remain intact, the company said. In a blog post, Zappos CEO Tony Hsieh said his board of directors has been “switched out,” and that the deal, worth about 10 million shares of Amazon stock, is valued at $1.2 billion, based on Friday’s closing price.

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[Corrected 9:05 a.m. 9/25/09, see below] In a performance reminiscent of the frothy days of the dot-com boom, stock in Watertown, MA-based lithium ion battery maker A123Systems (NASDAQ: AONE) soared more than 50 percent in its first day of trading yesterday. It’s been years since a New England technology firm burst out of the IPO gate so strongly, and Wall Street’s interest in the company—which hopes to supply batteries for many of the electric vehicles likely to come to market over the next several years—has significantly boosted the portfolios of the major venture investors, strategic investors, and executives who hold shares in the company, at least on paper.

The individual investor whose shares gained the most value yesterday is legendary Boston-area entrepreneur and philanthropist Gururaj “Desh” Deshpande, the founder of Sycamore Networks and the donor behind the Deshpande Center for Technological Innovation at MIT. Desphande owns 7.3 percent of A123Systems; at the IPO price of $13.50 per share yesterday, that stake was worth just over $95 million. By the end of the day, when the company’s stock price had climbed to $20.29, Deshpande’s shares were worth nearly $143 million. (See Table 1 below.)

A123Systems’ main venture backer, North Bridge Venture Partners of Waltham, MA, also fared well yesterday. With 9.3 percent of A123’s outstanding shares, the venture firm is the battery maker’s single largest shareholder. Its stake was worth just under $121 million at the offering price and had grown in value by $60 million by the end of the day. [Update: PE Hub has an interesting table today, using investment data from Thomson Reuters, estimating the share values for A123's six largest venture backers. The VC firms' (as yet unrealized) multiples, based on yesterday's closing price, vary from 3.03 to 7.23, according to Thomson's estimates; North Bridge's multiple comes in at 4.35.]

Overall, the company’s eight largest shareholders saw the value of their holdings increase by almost $270 million on Thursday [Updated and corrected: not $365 million as a previous version of this story reported due to a double-counting error in the math]. The company’s total market capitalization increased by $600 million over the course of the day, ending at $1.96 billion. Not bad for a company that has raised only about $352 million in private, dilutive investments. (A123Systems also benefited from $100 million in refundable tax credits from the state of Michigan, a $249 million Department of Energy grant this August, and about $250 million in other government grants and loans, leading PE Hub’s Deborah Gage to comment that “the biggest backers of A123Systems are taxpayers.”)

Here’s a list of A123Systems’ biggest shareholders, drawn from regulatory filings, and the amounts by which their stakes grew in value yesterday.

Table 1. A123Systems’ Eight Largest Shareholders and Their Stakes

* The “Shares Owned” figures refer to shares owned after the offering.

Source: A123 Systems Form S-1, page 124.

Of course, the gains reflected in the table above are on paper only—none of A123’s largest shareholders actually sold shares in the initial offering. But as part of the offering, several A123Systems principals did sell portions of their stakes in the company. Co-founder Yet-Ming Chiang, who developed the company’s battery technology in his laboratory at MIT, sold the most shares—a stake amounting to about $2.8 million at the IPO price of $13.50 per share. Here’s the list of selling shareholders identified in regulatory documents:

Table 2. Selling Shareholders in Yesterday’s IPO

Source: A123Systems Form S-1, page 125.

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A123Systems, the Watertown, MA-based advanced battery manufacturer that hopes to provide lithium ion batteries for the next generation of electric and hybrid vehicles, today revealed the expected stock price for its initial public offering. The company will seek to sell 25 million shares of its common stock at $8.00 to $9.50 per share, according to regulatory forms filed today. That would bring the company between $200 million and $237.5 million in new working capital.

Individual shareholders, including senior managers at A123, will sell an additional 680,500 shares, potentially netting them $5.4 million and $6.5 million. A date for the IPO has not been announced. Morgan Stanley and Goldman, Sachs are the lead underwriters, and A123 will trade on the NASDAQ exchange under the ticker symbol “AONE.”

There is likely some numerological significance to the timing of the announcement of A123’s IPO terms. As Bob reported last year, A123 deliberately chose to submit its original IPO filing at 8:08 a.m. on August 8, 2008 (8:08 on 08/08/08). A123’s co-founder, MIT material scientist Yet-Ming Chiang, was born in Taiwan, and in Chinese culture the number 8 is considered to be especially lucky, associated with sudden fortune and prosperity.

Today is 09/09/09, and in Chinese numerology, the number 9 is traditionally associated with power, since it is the highest number before 10. In Mandarin (though not Cantonese) the word for 9 is also a homonym for “long-lasting.” Traditionally, the robes of the emperor of China showed nine dragons, and in Chinese mythology, dragons have nine children.

As Chiang wrote in an e-mail after the initial IPO filing: “It was not a coincidence that the ’send’ button was pushed at 8:08am on 8/8/08, although I wasn’t the one who did it!” Today’s filing is probably no coincidence either.

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Seattle-based cancer drug developer Cell Therapeutics (NASDAQ: CTIC) announced in a press release today that it has raised $30 million by selling preferred stock and warrants to purchase shares of its common stock to a single institutional investor. The money will be used as operating capital by the company. The offer is expected to close on Monday.

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Seattle Genetics (NASDAQ: SGEN) announced today that it will be selling 11 million shares of common stock in an underwritten public offering for $10.75 a share. This is expected to raise about $118.2 million for the Bothell, WA-based developer of antibody cancer drugs. The offering is expected to close by Monday. Seattle Genetics’ stock price was $10.99 at market closing Tuesday, so the new offering gives buyers approximately two percent in savings.

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Javelin Pharmaceuticals’s stock had lost more than a quarter of its value as of late this morning. This comes on the heels of the Cambridge, MA-based drug developer (AMEX:JAV) announcing this morning that its late-stage clinical of intranasal ketamine (Ereska) showed “borderline” statistical improvement over placebo in treating pain after orthopedic surgery. According to Google Finance, the company’s stock was down 54 cents or 26.47 percent to $1.50 per share for the day, as of 11:12 am ET.

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Idenix Pharmaceuticals (NASDAQ:IDIX), a Cambridge, MA-based developer of anti-viral drugs, announced today in a press release that it has priced a secondary public offering of 7.25 million shares at $3.14 each. Idenix expects to raise $21.2 million from the offer, which is expected to close on August 10, after processing fees and other costs. The company is currently developing treatments for Hepatitis C.

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Worcester, MA-based RXi Pharmaceuticals (NASDAQ: RXII) said today it is raising $8.3 million in working capital through a stock offering that’s expected to close on August 4. The company, which is developing drugs based on RNA interference for the treatment of conditions such as rheumatoid arthritis, is selling about 2.4 million shares of common stock at $3.50 per share, as well as warrants for almost a million shares at $4.50 per share. It expects to realize about $7.8 million in net proceeds from the sale.

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A regulatory filing published yesterday showed that Boston, MA-based marketing and technology consultancy Sapient (NASDAQ: SAPE) had issued company shares worth $23.4 million in a private stock offering. According to the company, the shares were part of Sapient’s purchase last month of Nitro, an international advertising firm, for approximately $50 million in cash and stock.

Sapient shared the following statement with Xconomy: “Sapient, in connection with its acquisition of Nitro, issued shares of Sapient common stock to Nitro’s principal shareholder, Christopher Clarke, and four minority Nitro investors. As these shares were exempt from registration under SEC Regulation D, Sapient filed an SEC-required Form D to disclose the issuance of the shares. The shares constituted a portion—but were issued independent of the cash portion—of the purchase price for the acquisition.”

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Maybe somebody at LogMeIn (NASDAQ: LOGM) has a remote control for the NASDAQ exchange? Shares of the Woburn, MA-based remote access software company are flying high today, selling for more than 25 percent above the $16 per share price set last night for the company’s initial public offering. As of 1:25 p.m. ET, shares were trading at $20.50, up about 28 percent for the day.

LogMeIn raised $106.7 million in its IPO, about $80 million of it going directly to the company and the rest to individual shareholders selling their stakes. It’s the 11th company to go public in the United States this year, the fourth venture-backed company to attempt an IPO, and the first venture-backed company from New England to do so.

At the $20.50 price, LogMeIn venture backer Prism VentureWorks’ shares in the company are worth $79.2 million, about $17 million more than they were last night. Polaris Venture Partners, which sold $7.4 million worth of shares at the $16 price, retains shares worth $61 million, about $13 million more than last night.

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Redmond, WA-based Microvision (NASDAQ: MVIS), a display technology company, announced today it has received a $15 million investment from Taipei-based Walsin Lihwa, a wire and cable manufacturer. The deal comes in the form of a sale of common stock to Walsin Lihwa’s subsidiary, Max Display Enterprises Limited, as well as a warrant to purchase more shares.

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The days have gotten longer, and deals are really flowing in the Northwest. In the past week, there has been quite a bit of activity across different sectors of biotech, energy, and software.

—Luke reported that Seattle-based Cell Therapeutics (NASDAQ: CTIC) sold $20 million worth of common stock, and warrants to buy stock, to a single unnamed institutional investor. The biotech firm hopes to swap some of that money, along with the $17.8 million in cash it currently has and some more common stock, to get rid of some $89.2 million in debt that will come due as early as 2010.

—Vancouver, BC-based Tekmira Pharmaceuticals, a maker of RNA interference drug delivery technology, formed a partnership with Swiss healthcare company Roche worth $18.4 million in upfront cash, Luke reported. Tekmira’s lipid-nanoparticle technique will be used in two of Roche’s products, and Tekmira will also receive $32 million in milestone payments if the products reach certain development goals.

—Seattle-based DocuSign, a digital-signature technology company, raised $5 million in Series D funding, led by previous investors Frazier Technology Ventures, Ignition Partners, Sigma Partners, and West River Capital. The software startup, founded in 2003, has raised some $30 million in venture capital.

—Luke reported that Seattle-based Dendreon (NASDAQ: DNDN) raised $197.4 million in a stock offering that is expected to close on May 13. The underwriter of the offering, Deutsche Bank Securities, has an option to buy another 1.27 million shares at the same terms within 30 days, which would amount to an additional $23 million. Dendreon will use the money to expand manufacturing and marketing of its experimental drug for prostate cancer, Provenge.

—Microsoft (NASDAQ: MSFT) is acquiring BigPark, an online gaming company based in Vancouver, BC. Financial terms of the deal were not announced. BigPark, which was co-founded by Hanno Lemke and Microsoft senior vice president Don Mattrick, will become part of Microsoft Game Studios.

—Amazon (NASDAQ: AMZN) has invested in Seattle-based Foodista, an online cooking encyclopedia site. The amount of funding of the Series A round, which included other angel investors, was …Next Page »

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When I founded Science Applications International Corporation (SAIC) in 1969, I owned 100 percent of the company’s stock. However, I soon realized that to attract talented employees—and keep them—I would need to offer them real ownership in the business by allocating some of the stock I held. So, within a year after I founded the company, I had reduced my ownership stake to roughly 10 percent. The company continued to issue new stock every year (as well as recycling stock repurchased from departing employees) and by the time I retired in 2004, I owned less than 2 percent of SAIC’s stock.

There is no doubt that this approach to structuring SAIC’s ownership was an unqualified success. The prospect of owning and running a piece of the business attracted many extremely talented men and women to the company, and we were able to grow SAIC from nothing in 1969 to about $6 billion of annual revenues by 2004. Today SAIC’s annual revenues top $8.9 billion a year.

But for entrepreneurs and company owners, there is another question that I am sometimes asked: How much stock does the founder need to maintain control of the company?

I can only answer this question using my own example, as each situation is unique.

By 1970, as I mentioned above, my ownership stake of SAIC was diluted to 10 percent of the company’s stock—so trying to maintain majority ownership and control of the voting stock became a moot issue for me. Even so, the benefits of our employee ownership were tremendous, and nobody really questioned who was in charge.

Company management issued stock to employees who brought new business into the company, and to attract highly talented new employees while rewarding high-performing current employees. By 1990, I owned approximately 2 percent of SAIC’s total shares outstanding and that continued until I retired as chairman in 2004.

Lacking majority voting control, I was fully accountable to the SAIC employee-shareholders during the entire time I served as CEO. That fact, coupled with our broad-based employee ownership structure meant that in many respects SAIC operated as a publicly traded company (including registering our shares with the SEC). But that didn’t inhibit my ability to control the company from the perspective of setting the strategic direction and overseeing key decisions typically handled by any CEO. If you know anything about SAIC’s history, you are probably aware that the pressure to take the company public grew considerably in the several years immediately preceding my retirement. Unfortunately, as my own ownership stake declined below 2 percent, so too did my ability to control efforts—both inside and outside the company—to pursue an IPO and change our unique approach to employee ownership.

I personally believe my position within the organization would have been strengthened if I had held onto 8 percent or so of the company stock to the end. This would have helped to keep those pressing for the IPO at bay—at least until I retired.

So my advice to founders is to hold on to 8 to 10 percent of their company’s stock for as long as they possibly can. This will allow them to use a large portion of the remaining stock to incentivize their employees while at the same time retaining a sufficient balance for themselves to maintain firm control over the company’s direction. This will also make their negotiating position at retirement stronger than what I personally experienced.

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Sim Simeonov, a general partner at Waltham, MA-based Polaris Venture Partners, is conducting an online survey to find out how much stock dilution technology startup founders generally experience between the creation of their companies and the all-important exit event. “There are rules of thumb but there is no good data about what happens to common stock,” Simeonov wrote today in a general e-mail to venture and media contacts. He has invited entrepreneurs to fill out the survey (here) and says he’ll share the data on his blog when the study is finished.

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Microsoft’s long-rumored job cuts are now official: 5,000 employees will be losing their jobs. The Redmond, WA-based software giant (NASDAQ: MSFT) said today in its quarterly earnings report that it is eliminating those positions over the next 18 months, which amounts to almost six percent of its workforce of 90,000 employees.

About 1,400 people are losing their jobs today, the company said in a statement. The cuts span a range of departments, including R&D, marketing, sales, finance, legal, human resources, and information technology.

The cuts are tied directly to a decline in Microsoft’s business. The company reported a profit of $4.17 billion in the most recent quarter, an 11 percent drop from the same period a year ago. To compensate for that, Microsoft hopes the job cuts will reduce annual operating expenses by $1.5 billion and its capital spending in fiscal 2009 by $700 million.

“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Steve Ballmer, chief executive officer at Microsoft. “We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today.”

While Ballmer said he was confident in the statement, the company didn’t go so far as to offer Wall Street a forecast for revenue or profits for the rest of 2009. Microsoft’s stock dropped 7 percent to $18.02 at 10 am Eastern time.

Microsoft plans to discuss the quarterly performance, and spending cuts, on a conference call with investors at 8 am Pacific/11 am Eastern.

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San Diego-based Ardea Biosciences announced today it has entered into a securities purchase agreement with institutional investors to raise about $30.6 million from the private placement of newly issued shares of its common stock. Ardea (NASDAQ: RDEA) is focused on the discovery and development of small-molecule drugs to treat HIV, gout, cancer, and inflammatory diseases.

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Kopin Corp. (NASDAQ: KOPN), a Taunton, MA, semiconductor manufacturer that makes tiny LCD displays for devices such as MyVu’s wearable displays, said yesterday that it plans to use cash on hand to buy back up to $15 million in company stock. Kopin CEO John Fan said in a statement that the company believes its stock (which is trading today in the neighborhood of $2.14 per share) is “currently undervalued” and that the repurchase program is “a prudent use of capital that underscores our commitment to building long-term value for our shareholders.”

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There are two main doors that a venture-backed company can go through to provide a payday for its early investors: go public, or get acquired. And for the time being, the first door has slammed shut. In the second quarter of 2008, which ended yesterday, there were no initial public offerings by venture-backed companies in the United States. Zero.

It’s the first time since 1978 that U.S. IPO activity has come to a complete halt, according to the National Venture Capital Association (NVCA). The first quarter wasn’t much better, with only five IPOs by venture-backed companies. In 2007, by contrast, there were 86 (18 in Q1, 25 in Q2, 12 in Q3, and 31 in Q4). In a report issued today in cooperation with financial news organization Thomson Reuters, the NVCA calls the situation “concerning enough to be characterized as a capital markets crisis for the start-up community.”

Nobody thinks the IPO market is dead—but it may be in for at least several more quarters of suspended animation. “It’s not Chicken Little,” says Michael Greeley, a general partner at Flybridge Capital Partners and president of the New England Venture Capital Association. “You just have to modulate your plan.”

For companies, that could mean going out to investors for another funding round—or just making their existing capital last longer. “Clearly, if you thought your company was going to raise capital based on an IPO price, that is not going to happen for another year or two,” says Greeley. “At Flybridge we just finished our partners meeting and for us, the lesson is what can we be doing now to operate our companies in a really disciplined, capital-efficient way.”

That’s looking like a wise idea. Statistics gathered by the NVCA show that 2008 is on track to be the worst year for IPOs since 2002, right after the dot-com crash, when there were only 22 IPO exits for venture-backed companies. And the bad year is part of a relatively disappointing decade, at least compared to the early 1990s: Between 2001 and 2007 there were only 385 IPOs among venture-backed companies, compared to 1,353 for the period 1991-1997. As a corollary, there’s a longer wait for the companies that do go public: the median age of venture-backed companies at IPO was 8.6 years in 2007, compared to just over 6 years in 1997.

M&A and IPO Activity Among Venture-Backed Companies, by Year

Source: National Venture Capital Association

In a survey last week, the NVCA asked its own members to name the three biggest reasons for the current IPO drought. Of the 662 venture partners who responded, 77 percent named “skittish investors” as a reason, while 64 percent pointed to the credit crunch resulting from the subprime-mortgage debacle, and 57 percent blamed the high cost of complying with Sarbanes-Oxley accounting rules for companies preparing to go public. A few other interesting reasons came up as well: lack of analyst coverage of smaller companies (18 percent), a generally poor selection of IPO candidates recently (15 percent), and the disappearance of investment banks willing to invest in early-stage companies (14 percent).

There was little optimism among NVCA members that the crisis will lift soon. Asked when they thought the IPO window would re-open, only 20 percent thought it would be this year. The largest group—43 percent—predicted that IPOs will pick up again around the summer of 2009, while 32 percent thought it might take until mid-2010, and 5 percent thought it would take even longer.

But while IPOs have dried up, the number of companies “in registration” with the Securities and Exchange Commission—that is, companies that have filed the paperwork to pursue IPOs—is about the same right now as it has been for the last five years:

Number of IPOs Per Year and Companies in Registration on the Last Day of Each Year

Source: National Venture Capital Association

I asked Heesen whether it was possible that the current dearth of IPOs would be offset later this year, if some of the 42 venture-backed companies currently in registration decide to stop circling the airport and come in for a landing.

He didn’t think so. “A very large number of companies, about 20 recently, have de-registered, saying they are no longer going to go the public route, and they’ve either been acquired or they’ve tried to secure additional financing,” Heesen noted. “And we also see quite a few companies registering just so that they can show the public at large and large corporations that they are Sarbanes-Oxley compliant and therefore ‘clean’ and ready to be acquired. It’s a for-sale sign, unfortunately, rather than a sign of interest in actually going public.”

There’s disagreement within the VC community over what all of this means for entrepreneurs and innovators. Greeley says that funds have raised a lot of capital that they’re itching to disburse, and predicts that …Next Page »

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Alnylam Pharmaceuticals (NASDAQ: ALNY), a Cambridge, MA, biotech firm working on RNAi-based therapies, said today that pharmaceutical giant Novartis had exercised an option to purchase approximately $5.4 million worth of Alnylam’s unregistered shares (i.e. restricted shares that were never offered for sale on the public market). The purchase boosts Novartis’s ownership stake in Alnylam slightly, from 13 percent to 13.4 percent.

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Waltham, MA-based e-mail marketing and survey firm Constant Contact yesterday filed an SEC registration statement saying it intends to sell more than 106,000 shares of common stock in a secondary offering. At the same time, Constant Contact stockholders—mostly venture firms looking for their exit—plan to sell some 4.3 million shares. At this morning’s stock price of $15.20, the sale would raise about $1.62 million for Constant Contact and roughly $65.1 million for its selling shareholders, who include Morgan Stanley Dean Witter Venture Partners, Longworth Venture Partners, Commonwealth Capital Ventures, and Greylock Partners.

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