Larry Ellison, the chief executive of Oracle, found himself $1 billion (£500 million) richer today after shares in a software firm he backed raised more than expected at initial public offering.

Shares in Netsuite, which makes business software, begin trading on the New York Stock Exchange today after raising $161 million in an offering that values the company at slightly more than $1.5 billion at the issue price.

The personal windfall to Mr Ellison, who backed the company after it was started by one of his former employees and retains a 61 per cent stake, according to Thomson Financial, will be just over $944 million.

Netsuite, which sells accounting software to mid-sized firms, sold 6.2 million shares — about 10 per cent of its stock — at $26 apiece, nearly $4 a share higher than the highest forecasts and almost double earlier predictions of between $13 and $16.

The float will further sweeten Mr Ellison's day, which began with the news that Oracle had posted a 35 per cent rise in profits for the recent quarter, pushing its shares up 6.5 per cent.

Netsuite, which was set up ten years ago by Evan Goldberg, a former Oracle programmer, is one of a number of firms embracing a new model for distributing software, known as "on demand", whereby products and services are accessed via the web.

Customers pay a subscription — instead of a one-off licence fee — to providers, who host the software on their own servers. They can therefore avoid the need to run costly information technology infrastructure of their own.

Netsuite, which has 600 employees and is based in California, is yet to make a profit, but its loss has narrowed from $35.7 million last year to $20.6 million in the nine months to September.

It has debts of $241.6 million.

The company said in its prospectus that it would use the cash raised to repay an $8 million loan from Tako Ventures, Mr Ellison's personal investment firm, for unspecified capital expenditures of $10 million to $15 million, and to make new acquisitions.

As part of the deal, the underwriters, led by Credit Suisse and W.R. Hambrecht, have the option to purchase an additional 930,000 shares to cover overallotments, which would take the total raised to about $185 million.

The IPO, one of Silicon Valley's most anticipated in recent times, was by Dutch auction, in which investors submit individual bids and the price is determined by the highest bid which will ensure that all the stock will be sold.

Netsuite's business model, which is known as "software as a service", can be used to provide anything from accounting to sales management and delivery-related software.

It was made popular by Salesforce.com, which went public in 2004, and has more recently been embraced by Microsoft, which refers to the concept as "cloud computing".

According to IDC, the research firm, sales of software as a service were about $3.7 billion in 2006 and are expected to rise by 32 per cent each annually over the next few years.

Netsuite's products are designed for small to mid-sized firms, whose accounting needs have outgrown the capabilities of simple software but are not yet complicated enough to warrant investment in the larger programs offered by competitors such as SAP and Oracle.

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