A Long, Hard Path to the Public

In 2000, when three Yale undergraduates founded an online financial services company called Higher One Holdings, they had visions of rapid growth and successively bigger rounds of financing from investors. With any luck, momentum would build toward the ultimate dot-com dream: a stock listing on a major public exchange.

Along the way, though, market forces placed obstacles in their path. First there was the collapse of the Internet bubble, followed by a drought in private equity activity.

Then came a credit crisis that became a global banking crisis and, later, worries about European sovereign debt. As with so many other start-ups, Higher One’s founders spent years building the company.

Finally, a decade after its founding, Higher One got its chance on June 17, raising nearly $35 million in an initial public offering on the New York Stock Exchange. The shares made their debut at $12 and closed on Thursday at $14.67, a slight rise from their first-day close.

Many analysts view Higher One’s success as a sign of a long-awaited thaw in the market for initial public offerings. About 62 companies have come to market this year in the United States, according to Thomson Reuters, outpacing the 61 that went public last year and the 34 that did so in 2008. An additional 125 companies have started the process in hopes of soon going public.

The rise is being watched closely by venture capitalists and private equity investors who have been waiting years to cash out of their holdings in companies like Higher One.

But the offerings are not without risk. Stock prices have been unusually volatile this year, with indexes soaring 10 percent from February to April, only to give back those gains and then some by June. A poorly timed initial offering can be disastrous for a company, for reasons having nothing to do with its own performance or prospects.

“Are things better today? Yes,” said Mark G. Heesen, president of the National Venture Capital Association, adding that many venture firms had been waiting for the exit market to improve before raising money for new funds. “But as I have said in the past, we’ve gone from a D+ to a C-.”

That is one reason 21 companies have withdrawn or postponed their offerings this year, according to Renaissance Capital, among them Solyndra, a maker of solar panels. And reports said the private equity firm Kohlberg Kravis Roberts postponed moving its listing to New York from Amsterdam.

“It’s a tough I.P.O. environment, but the best companies can get through the window,” said Stewart Gross, a managing director at Lightyear Capital, a private equity firm that invested in Higher One in 2008 and helped guide it through the public offering process.

Higher One was one of six companies that went public last week; they raised a total of $1.2 billion, the most in any week this year. Higher One initially set a share price range of $15 to $17, but lowered the target to $12 before the opening.

On June 17, its first day of trading, Casey McGuane, Higher One’s chief service officer, rang the opening bell on the New York Stock Exchange. By day’s end, the company’s shares had risen 19 percent, to close at $14.27.

How have this year’s stock openings performed? Six priced above their filing ranges, 28 priced within their ranges and 32 priced below, according to Dealogic, which counts 66 offerings so far this year. The tepid results have companies that are considering public offerings closely watching the public markets.

New stock listings are receiving attention not only for their swelling numbers but also for their size and brand-name appeal. Companies that have announced initial offering plans include Toys “R” Us, which is seeking to raise $800 million; the consulting firm Booz Allen Hamilton ($300 million); Tesla Motors, a maker of high-performance electric cars ($178 million); and Zipcar, the car-sharing service ($75 million).

Also in the pipeline are larger deals like HCA, the hospital chain ($4.6 billion) and Nielsen Holdings ($1.75 billion).

The largest initial offering this year could be that of Agricultural Bank of China, which is preparing a dual listing in Hong Kong and Shanghai for next month that could raise as much as $25 billion. The bank, which has about 24,000 branches with a focus on rural areas of China, started marketing its stock listing on Thursday.

At Higher One’s headquarters in New Haven, Conn., not far from Yale, Mark Volchek, one of the company’s founders and now its chief financial officer, said he was always confident about the offering despite the unpredictable state of the markets.

“Everyone wishes the market was better,” Mr. Volchek said. But unlike so many technology start-ups that went public a decade ago with virtually no revenue or track record, he added, “we were a strong, profitable company.”

According to its regulatory filings, Higher One had net income of $14.2 million on revenue of $75.5 million in 2009.

Higher One is like an online alternative to the college bursar’s office; it provides electronic payment and disbursement services for universities. It distributes financial aid and other money to students and provides banking services, including debit cards, online billing and a service that lets parents easily deposit money in student accounts.

The company’s founders initially wanted to expand the use of college ID cards for financial services. Sean Glass, who left Higher One in 2008 to start another company, said he had discussed the idea on his 20th birthday while driving with Mr. Volchek and Miles Lasater to an event for aspiring entrepreneurs in Boston in 2000.

“There were so many businesses formed in 1999 and 2000 which people had no idea would make any money,” he said. “We could see this was a service that was going to generate revenue.”

Mr. Volchek recalled the difficulty they had in attracting a first round of investment, though they managed to raise $650,000 to get off the ground. By 2004, they had raised about $16 million and landed their first customer, the University of Houston.

In August 2008, they raised $75 million from Lightyear Capital to finance growth and to distribute proceeds to early investors. The stake also set Higher One on a path to the initial stock offering, and valued the company at more than $800 million.

Mr. Gross said Lightyear Capital always thought Higher One was a company whose business model, growth prospects and management team pointed toward a public offering.

“We just didn’t know how long that might take,” he said.

Mr. Volchek said ringing the opening bell at the New York Stock Exchange felt like the culmination of six months of diligent preparation. “It’s the beginning of a new phase for the company,” he said.