Netsuite IPO Shows SaaS's Strength

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The software-as-a-service market continues to show strength with yet another initial public stock offering, this time by NetSuite, the on-demand business software firm formed in 1998 by Oracle chief Larry Ellison and a former Oracle executive.

NetSuite’s ERP (define) software is used by some 5,300 small and medium-sized businesses to run their companies, according to the filing with the Securities and Exchange Commission. It markets primarily to companies with under 1,000 employees.

NetSuite’s software performs a variety of functions, including accounting, payroll, online sales, Internet marketing and salesforce automation. Besides being on-demand instead of installed, NetSuite claims its integration offers it a major advantage over competitors.

Ellison and ex-Oracle engineer Evan Goldberg set up NetSuite about four months before Salesforce.com , the darling of the on-demand world, but NetSuite has yet to turn a profit. It reported a loss of $23.4 million last year on sales of $67 million and has an accumulated deficit of $193 million.

NetSuite started out as NetLedger. Goldberg, a high-ranking software engineer at Oracle, at the time convinced Ellison to bankroll his venture. Ellison helped Benioff to start Salesforce.com around the same time and owns about 4.5 million shares of Salesforce.com. So far, Salesforce.com has had the better return on investment.

The company’s filing did not give details on how many shares it expected to sell in the offering, or its expected price range. The company plans to raise $75 million from the sale, according to its SEC filing. Credit Suisse will handle the offering, with W.R. Hambrecht as co-manager.

Ellison, worth an estimated $21.5 billion, has invested about $93 million in NetSuite and controls about 61 percent of the company. He also has trusts for his children Margaret and David, each with another 6.5 percent of the company’s stock.

While the company has not enjoyed growth on par with Salesforce, it is doing better, nonetheless. For its fiscal year ended December 31, 2006, sales rose 82 percent, from $36.3 million in 2005 to $67.2 million in 2006. The net loss shrank from $38.2 million in 2005 to $23.4 million in 2006.

Its balance sheet also improved in the last year. NetSuite had $24.9 million in current assets in 2005 but $38 million in current assets in 2006. Current liabilities also skyrocketed, however, from $45.3 million in 2005 to $70.1 million in 2006.

This article was first published on InternetNews.com.