By Heather Somerville
SAN FRANCISCO (Reuters) - Software company Atlassian's public offering this week, among the most highly valued IPOs of the year, is expected to renew Wall Street's faith in some tech unicorns and prime the market for more companies to go public.
In Atlassian, investors see more of what they want - profits and disciplined spending - which may be just the confidence boost they need to embrace more tech IPOs in 2016, according to bankers, fund managers and investors.
Atlassian, which sells collaboration and management software, has been profitable for the last decade and raised no venture capital to support its operations. That makes it unique in a landscape of tech companies with high spending rates and diluted shareholders burned by massive funding rounds.
But Atlassian signals to investors that among the crop of 145 tech unicorns - venture-backed private companies worth $1 billion (£663.4 million) or more - there are still some that are not overvalued.
If the Atlassian IPO is as strong as expected, investors may be more willing to make a few bets to find others.
"The Atlassian IPO is really the right one for the market to be a more accepting and more properly functioning IPO market," said Paul Boyd, managing partner at ClearPath Capital Partners.
Improving IPO market sentiment is especially critical now that calls are growing for unicorns lingering in the frothy private market to go public. Bill Maris, CEO of Google's venture capital arm, this week became the latest investor to criticize mature tech companies for dragging their feet.
"People are starting to realize that in the private market it's not always better, particularly with inflated valuations," said Aaron Levie, co-founder and CEO of Box, an enterprise cloud company that went public in a troubled IPO in January.
"Atlassian is certainly going to bring that conversation to the forefront again," he said.
Several high-profile unicorns, including Nutanix and Cloudera, have long been expected to go public and may face investor pressures to do so in 2016.
"It doesn't open the floodgates for all tech IPOs," said Cindi Profaca, managing director of IPO Financial Network. "But it's a statement that the right deal at the right time will work."
Atlassian, with offices in San Francisco and Sydney, is slated to begin trading Thursday on the Nasdaq under the ticker symbol "TEAM." On Monday it raised its initial price range to $19 to $20 per share, and added another 2 million shares to the deal.
It is just the eighth company this year to increase both price and deal size before an IPO, according to data from Dealogic.
At the top end of the range, Atlassian will raise $440 million at a $4.2 billion valuation, making it the sixth most valuable IPO of the year, according to data from IPO fund manager Renaissance Capital. It was last valued in the private market at $3.3 billion in 2014.
Atlassian will set a final sale price on Wednesday.
As the last tech deal of 2015, Atlassian closes out a particularly dismal year for IPOs, with many going public at or below their private valuation, and continuing to see their share prices fall.
The slump reflects investors' wariness about tech unicorns being overvalued. Markdowns of private tech companies by mutual funds including Fidelity Investments have added to the concern.
Even before Atlassian, that concern had started easing, just slightly.
Despite a rough IPO that discounted Square by 42 percent from its private market valuation, the mobile payments company traded up on opening day and continues to trade above its IPO price. Then Match Group, which operates dating websites, last month opened above its IPO price.
"We had those two higher profile launches that retested the waters, reinvigorated what was really becoming a quite concerned investor community around the IPO process," Boyd said.
"The Atlassian IPO will be the icing on the cake to show the IPO market is OK," he said.
Should it surprise investors and trade down, it will most likely be because bankers pushed the opening price too high, according to a banker familiar with the deal.
For some startup founders, Atlassian is a reminder of how much they give up when they place the goal of obtaining ever-higher valuations ahead of profitability.
Atlassian co-founders Michael Cannon-Brookes and Scott Farquhar each own 37 percent of the company and will retain a 33 percent stake after the IPO.
"If a company is profitable, it's controlled by the founders," said Denis Mars, who mentors startups for tech accelerator Y Combinator and has known Cannon-Brookes since 2009. "If it's not, it's most likely going to be controlled by the investors."
(Editing by Stephen R. Trousdale and Ken Wills)