Behind Convio’s decision to kill its IPO

It should have been an ideal time for Convio to go public: The startup, whose online service helps non-profits raise cash and communicate with donors, is not only part of the buzzy “software-as-a-service” movement, but it’s also getting a piece of the action in one of the most money-flush political years on record.

But the Texas company yanked its IPO a few days ago, saying a weak economy and skittish stock market have made a successful public offering impossible. (Fellow startups GT Solar (SOLR) and Rackspace (RAX)  recently took the plunge, though some will argue that they shouldn’t have.) And to hear CEO Gene Austin talk about it, it could be a while before the company moves to go public again – which makes Convio’s story a cautionary tale for anyone who cares about the IPO market.

It’s not like Convio it trying to be the next Google (GOOG). The company has 335 employees, most of them in Austin, with satellite offices in Berkeley and Washington, D.C.  Revenues for 2007 were a respectable $43.1 million, though there are no profits yet. In its most recent quarterly earnings report, the company posted revenue of $14.7 million, $1.3 million in operating cash flow, and a GAAP net loss of a little under $1 million. So the company seems to be on basically stable footing, though it certainly doesn’t have a lot of room for error.

Still, growth is strong, and the company is investing in the future. Every Convio employee has stock options, and you can bet that since the company first filed to go public last August, many were hoping a healthy IPO would lead to a financial windfall.

In February though, Austin, a veteran of BMC Software (BMC) and Dell (DELL), began to have serious doubts about the timing of an offering. With the credit crisis and high oil prices roiling financial markets, he started talking to Chief Financial Officer James Offerdahl about various scenarios. “The hole seemed to be getting deeper for the economy,” Austin recalls. Then came the second quarter – the first quarter since 1978 that saw no venture-backed companies go public. “I was probably more leaning towards pulling it in late June, and others were not so sure,” says Austin. “But as we continued the discussions, by the end of July at our board meeting it was pretty clear that that was the right thing to do given today’s market environment. Good companies don’t need to go public in bad markets.”

Delaying the offering comes with downsides. Austin says Convio’s $13 million in cash is plenty to fund its operations right now, but he also recognizes that “a war chest of cash is a nice thing to have.” Investors who backed Convio – most notably Granite Ventures, El Dorado Ventures and Adobe Systems (ADBE) – will have to wait a bit longer to cash out. And the company won’t bring in new board members as soon as it might have.

Austin says Convio will give an IPO another go when financial markets are more stable (”not up 200, down 200″), the U.S. economy has settled down, and software-as-a-service companies are getting healthy valuations. Of course, that might not take too long – but it will almost certainly be more than a year.

At the same time, he’s clearly glad the company isn’t facing an immediate resource crunch. So I wouldn’t hold my breath.