Fixed on the market

Although the IPO market is closed right now, some VCs are nonetheless steering – and steeling – their portfolio companies for a public market payday. Of course, that often means passing up a trade sale, which holds out the appealing prospect of cash on close. But Menlo Ventures’ John Jarve pointed out in his talk at IBF’s early-stage investment conference that those sales can be shortsighted. Consider the case of portfolio company Cavium Networks.

Jarve says Cavium, which makes security processors for F5 and Cisco, among others, has attracted a number of suitors. One would-be buyer floated a $350m offer for the company. Instead, Cavium went public in May 2007. At its peak, it sported a market capitalization of nearly $1.5bn. Even in the midst of the current Wall Street meltdown, Cavium is still valued at $500m.

The Cavium tale sparked a round of (perhaps apocryphal) Silicon Valley chestnuts about companies that also passed on trade sales to remain independent: Cisco allegedly rejecting an $80m offer from 3Com and Google nixing a reported $1bn bid from Yahoo. One we can add to that list is Riverbed. Several sources have indicated that Cisco made a number of serious approaches to the WAN traffic accelerator, but was rebuffed. Riverbed, which at one point was valued at about $3.5bn, currently trades at a $740m market capitalization.