As Facebook approaches its launch on the stock market, executives and investors in Massachusetts technology, biotechnology, and other young firms are watching carefully, hoping that the social networking giant will jump-start a lackluster market for initial public offerings.
That market, in which companies sell shares on public stock exchanges for the first time, has struggled along with the economy in recent years. Nationally, IPOs fell 31 percent last year, while in Massachusetts the number of companies going public declined to five, from seven in 2010, and 22 in 2007, the year before the financial crisis.
Many analysts say a big, successful Facebook IPO, expected in the spring, is just what the market needs.
“A Facebook IPO will be a mammoth seismic event that will start a small tidal wave,’’ said David Menlow, president of IPOfinancial.com, a Green Brook, N.J., firm that tracks IPOs. “Facebook will embolden a lot of companies to feel that the technology sector is on an upswing.’’
IPOs are key tools for companies to raise money to grow and for venture investors who backed firms early to cash out, freeing up money for them to invest in other young and promising businesses. A healthy IPO market is particularly important to a state like Massachusetts, where the economy is driven by innovation, new technologies, and emerging companies.
Eight Massachusetts companies have filed paperwork with the Securities and Exchange Commission to go public, but have yet to move forward, price shares, and begin selling them on stock exchanges.
None of the companies responded to requests for comment. Financial regulations require that companies refrain from discussing upcoming initial public offerings.
Successful IPOs by high-profile companies like Facebook can help create a favorable climate for new offerings, analysts said. The spectacular IPO launched by Internet browser company Netscape Inc. in 1995, for example, opened the floodgates for scores of IPOs that eventually led to the dot-com boom - and bust.
In 2000, Massachusetts companies launched 34 IPOs, a high-water mark that hasn’t been approached since.
“When deals in a particular industry, especially marquee deals, get done, it definitely creates a lift for the whole sector,’’ said Scott Gehsmann, a partner with consulting company PricewaterhouseCoopers LLP’s transaction services group.
A steadily rising stock market can also spur the IPO market, which also suggests new offerings will pick up this year. On Friday, the technology-heavy Nasdaq composite index closed at its highest level since the end of 2000.
“We are expecting 2012 to be a year of recovery for the IPO market led by the Facebook IPO,’’ said Kathleen Smith, principal of the New York IPO investment adviser Renaissance Capital. “This is a good sign for the historically large backlog of companies in line to go public.’’
Few analysts, however, expect a return to the dot-com era. Mark Heesen, president of the National Venture Capital Association, said the difficult IPO market of the past few years has weeded out some of the younger and riskier companies, which may have opted to sell themselves to bigger companies rather than wait for the market to rebound.
As a result, he said, companies lined up to go public are likely to be more mature firms with established products, revenues, and profits, unlike the dot-coms, many of which relied on promise alone. In addition, investors appear more discerning, evaluating each IPO on its merit.
“I don’t want to see the coattails effect we saw in 1999,’’ said Heesen. “Every IPO has to stand on its own two feet.’’
Menlow of IPOfinancial.com agreed that Facebook’s glow is unlikely to blind investors to the value, or lack thereof, of other technology companies.
“The harsh reality is that there is Facebook, and then there’s the rest of the Internet companies,’’ he said.
“Most investors know the difference.’’
Some analysts, however, say that the Facebook IPO could dampen the IPO market, drawing investors away from other offerings. Richard J. Peterson, director of research strategy and innovation at the research firm McGraw-Hill Financial, described it as a “crowding out effect.’’
“With the high number of companies in the IPO pipeline,’’ he said, “some could be at risk of seeing their offering wait extended as some investors await Facebook.’’
Analysts say it’s probably too soon to declare a “Facebook effect,’’ but no less than 10 companies nationally are expected to price their shares and launch on the stock market this week, according to Renaissance Capital.
In general, said Gehsmann of PricewaterhouseCoopers, high-profile IPOs can provide a catalyst for other offerings.
“If the companies with the very best advisers, the A Teams, are saying ‘Now’s the time,’ ’’ he said, “that gives the IPO market a lot of momentum.’’
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