funding on SWiK

Sci-Fi Hi-Fi: Weblog

Sat, 30 Aug 2008 06:01:37 -0700

Asking the right questions of open source

Mon, 18 Aug 2008 05:14:59 -0700

A classic Morecambe and Wise comedy sketch from the 1970s sees Andre Previn criticizing Eric for playing all the wrong notes while attempting the Greig Piano Concerto. Morecambe responds that he is in fact “playing all the right notes. But not necessarily in the right order.”

I was reminded of the sketch this morning while reading BusinessWeek’s article on the potential perils facing open source vendors today. It seems to ask all the right questions, but not necessarily in the right way.

The report suggests that while industry giants such as IBM, HP, Oracle and Intel stand to benefit from open source software, investor impatience could spell trouble for open source specialists such as Red Hat, Novell, and other smaller vendors.

Among the interesting questions asked in the report are whether Red Hat might be an acquisition target for VMware, whether Linux vendors can persuade netbook vendors to pay for support, and whether investors will run out of patience given the time it takes open source vendors to mature.

These are all interesting questions. Unfortunately asking them all in one very short report paints a highly negative and unbalanced picture of open source software vendors. In particular the netbook question is only a problem if vendors are relying on it to generate revenue, which few of them are.

The report also relies on an outdated view of how open source specialists generate revenue from open source software.

“What’s ailing open source? Vendors often lack access to a broad array of distribution channels. Their business is typically based on selling tech support rather than offering unique, must-have technology that customers will keep craving even when budgets are tight,” it says.

In reality most open source vendors have some kind of ‘unique, must-have technology’ that is only available via commercial license or subscription, although it is true that many open source specialists are still defining their value add and working to strike the right balance between open and closed.

BusinessWeek also states that Red Hat “has yet to crack $1 billion in sales, despite proffering Linux for well over a decade” and points out that MySQL took 13 years to go from start-up to $1bn acquisition, adding that “many investors won’t wait that long.”

This is definitely a ‘glass-half empty’ look at the world. Although I have previously noted that open source vendors need time to thrive I believe the VCs that understand open source software are well-aware of this and have placed their bets accordingly.

The report also states that “only a handful of open-source acquisitions the last two years have netted investors at least 10 times their money.”

That may well be true, but we have only recently seen serious M&A activity involving open source vendors. That “handful” is actually a decent proportion of the total number of M&A deals done so far, some of which have returned much much more that 10 times the money to investors.

As for VMware as a possible suitor for Red Hat - the report states that “former VMware CEO Diane Greene… had set up meetings with Red Hat in part to position VMware as friendly to open source and possibly as a prelude to a buyout discussion.”

This is an intriguing suggestion although it is hard to imagine what VMware would gain from such a deal, other than a substantial customer base. The lack of explanation on this point is a flaw for the report, as is the mention of SpikeSource without reference to the fact that the company’s model has evolved to address both open and closed source software.

BusinessWeek concludes that “If the open-source movement, now in its second decade, is to realize its promise for vendors and investors, more of its purveyors will need to get the message soon” and realize that a pure services business is not the answer.

The question that most open source vendors face is not how to evolve beyond a services-led model but what balance of open and closed software enable them to maximize the benefits of open source development and distribution and turn widespread interest into paying customers.

Announcing Freedom Summer of Code - fsoc - groups - riseup.net

Sun, 10 Aug 2008 19:09:31 -0700

WordPress gets $29Mil at nyc.locationscout.us

Fri, 08 Aug 2008 10:07:45 -0700

"WordPress Planet | Mark Jaquith: Automattic secures $29.5 million B round | Posted in Automattic, funding, new york times, old media, venture capital by Mark Jaquith on January 23rd, 2008"

[from bushwald] Phurnace Software completes $5M funding round - Austin Business Journal:

Mon, 21 Jul 2008 16:02:41 -0700

NLnet; Welcome to NLnet Foundation

Mon, 21 Jul 2008 02:46:46 -0700

NLnet foundation financially supports organizations and people that contribute to an open information society. It funds software, events, educational activities --and more. The procedure is fast and open to anyone. Find out what NLnet can do for you

[from bushwald] TechCrunchIT " Blog Archive " Engine Yard Aims For Java With RubyOnRails Platform - Raises $15M Series B

Thu, 17 Jul 2008 08:55:18 -0700

Hopefully Engine Yard's ambitions are beyond rails. They could have a good cloud story if they keep things open with an eye towards standards. Never mind being rails-parochial.

Bladder Cancer Research Grants

Wed, 16 Jul 2008 02:56:35 -0700

[from bushwald] Engine Yard Closes $15 Million in Series B Financing

Mon, 14 Jul 2008 08:44:14 -0700

SummerBits - SAPO

Tue, 08 Jul 2008 14:47:54 -0700

"O programa "SAPO Summer Bits" é inspirado no Google Summer of Code, onde são oferecidas bolsas a estudantes, de todos os graus de ensino ou proveniências [...] para que desenvolvam código para<sep/>

Digital Wish

Sun, 06 Jul 2008 16:47:02 -0700

[from bushwald] SpringSource Gets $15 Million in Series B Funding

Fri, 04 Jul 2008 13:50:24 -0700

"has just received $15 million in Series B funding. The round of venture capital financing was led by Accel Partners, and Benchmark Capital, the lead investor in SpringSource's first financing round, also chipped in."

[from bushwald] Open-source venture funding rises 14 percent in Q2 | The Open Road - The Business and Politics of Open Source by Matt Asay - CNET News.com

Tue, 01 Jul 2008 08:54:30 -0700

"Venture funding for open-source companies rose to $115 million in the second quarter, a 14 percent increase over the same period a year ago, according to The 451 Group." But, not so much in new funding.

Home - Open version - Vote for the next feature. Sponsor good ideas

Thu, 26 Jun 2008 11:56:47 -0700

[from swwsman] The 2 paradoxes of SOA funding

Fri, 20 Jun 2008 06:21:48 -0700

Venture Capital, Angels or Bootstrap?

Sun, 15 Jun 2008 09:20:53 -0700

Greg Linden was one of the key developers behind Amazon’s recommendations system, which recommends books, movies, and other products to Amazon customers based on their purchase history. He subsequently went to Stanford and picked up an MBA, and in January 2004, he launched a startup named Findory, which offers personalized online newspapers. It’s hard to imagine anyone more qualified to make a startup like this a success, yet Findory shut down in November 2007. In a brilliant post-mortem, Linden says his big mistake was to bootstrap his company while trying to raise funding from venture capital firms — he just couldn’t convince them to invest. He should have raised his funding from angel investors instead.

Where to raise funding is an important decision every startup founder has to make. The three viable sources at the very early stages of a company are:

Venture capital.
Angel investors. Usually wealthy individuals, but includes outfits such as Y Combinator.
Friends and family. Yourself, if you can afford it.

To decide which option is best for your startup, you need to understand how investors evaluate companies. There is a range of criteria, of course, but the three most important ones are team, technology and market, and angels and VCs evaluate them in different ways. Here’s how.

How Venture Capitalists Evaluate Startups

Market — VCs want to invest in companies that produce meaningful returns in the context of their fund size, which typically is in the hundreds of millions of dollars. To interest a VC firm, a company needs to be addressing a large market opportunity. If you cannot make a credible case that your startup idea will lead to a company with at least $100 million in revenue within 4-5 years, then a VC is not the right fit for you. It’s often OK to use consumer traction as a substitute for market opportunity; many VCs will accept a large and rapidly growing user base as sufficient proof that there is a potentially large market opportunity.
Team — VCs use simple pattern matching to classify teams into two buckets. A founding team is deemed “backable” if it includes one or more seasoned executives from successful or fashionable companies (such as Google) or entrepreneurs whose track record includes a least one past hit. Otherwise, the team is considered “non-backable.”
Technology — VCs aren’t always great at evaluating technology. To them, technology is either a risk (the team claims their technology can do X; is that really true?) or an entry barrier (is the technology hard enough to develop to prevent too many competitors from entering the market?) If your startup is developing a nontrivial technology, it helps to have someone on the team who is a recognized expert in the technology area, either as a founder or as an outside adviser.

Here’s the rule of thumb: To qualify for VC financing, you need to pass the market opportunity test and at least one of the other two tests — either you have a backable team, or you have nontrivial technology that can act as a barrier to entry.

How Angels Evaluate Startups

There are many kinds of angels, but I recommend picking only one kind: someone who has been a successful entrepreneur and has a deep interest in the market you are targeting or the technology you are developing. Here’s how angels evaluate the three investment criteria:

Market — It’s all right if the market is unproven, but both the team and the angel have to believe that within a few months, the company can reach a point where it can either credibly show a large market opportunity (and thus attract VC funding), or develop technology valuable enough to be acquired by an established company.
Team — The team needs to include someone the angel knows and respects from a prior life.
Technology — The technology has to be something the angel has prior expertise in and is comfortable evaluating without all the dots connected.

Here’s the angel rule of thumb: You need to pass any two out of the three tests (team/technology, technology/market, or team/market). I have funded all three of these combinations, resulting in either subsequent VC financing (e.g. Aster Data, Efficient Frontier, TheFind), or quick acquisitions (Transformic, Kaltix — both acquired by Google).

Friends and Family, or Bootstrap

This is the only option if you cannot satisfy the criteria for either VC or angel. But beware of remaining too long in “bootstrap mode.” An outside investor provides a valuable sounding board and prevents the company from becoming an echo chamber for the founder’s ideas. An angel or VC can look at things with the perspective that comes from distance. Sometimes an outside investor can force something that’s actually good for the founder’s career: Shut the company down and go do something else. That decision is very hard to make without an outside investor. My advice is to bootstrap until you can clear either the angel or the VC bar, but no longer.

But back to Greg Linden and Findory. By my reckoning, Findory passes the team and technology tests from an angel’s point of view — if you pick an angel investor who has some passion for personalization technology. But it doesn’t pass any of the VC tests. Given this, Greg should definitely have raised angel funding. My guess is that this route would likely have led to a sale of the company to one of many potential suitors: Google, Yahoo or Microsoft, among many others. Of course, hindsight is always 20-20. I have deep respect for Greg’s intellect and passion and wish him better luck in his future endeavors.

Anand Rajaraman is a co-founder of Kosmix.com and a founding partner of Cambrian Ventures. Full disclosure: He is also an investor in GigaOM.

NLnet; Welcome to NLnet Foundation

Sun, 15 Jun 2008 09:17:17 -0700

F|R Crib Sheet: The Term Sheet Glossary

Mon, 26 May 2008 09:21:38 -0700

I work as an attorney to a lot of company founders, and I know from experience that when the time comes to negotiate a round of funding, entrepreneurs often find themselves at a disadvantage. Much of it has to do with language. There is an array of terms and issues that investors and lawyers work with regularly and understand, but that entrepreneurs deal with only once in a while. It would take many posts to cover all of them, but here is a Crib Sheet of 10 Key Terms that clients most often ask me to explain when they receive term sheets from prospective investors.

Let’s start with the basics of valuation. The three biggest questions I get are: How much is my company is worth? How much of my company will I have to give up? How is that calculated? Three valuation terms you need to know are:

1. Pre-money valuation: Investors will assign a valuation to the company and its shares before they even think about dropping a dime on it. Your “pre-money valuation” is what your company is worth before the VC deal happens.

If the pre-money valuation is $10 million and there are 4 million shares outstanding, the investors are offering to pay $2.50 a share for the company.

2. Post-money valuation: This is what your company is worth after the deal. If the investors then put in $5 million, the post-money valuation will be $15 million and the investors will own one-third of the company.

3. Fully diluted capitalization: This is how that 4 million share number is calculated. It’s not necessarily obvious. You may have issued 3 million shares to your co-founders and early employees. However you’ll need to issue more shares (in the form of stock options) to future employees, so you budget for those by creating a share pool consisting of 1 million shares. The 1 million shares have not been issued, but they are treated as if they’ve been issued when the valuation is calculated. Thus, 3 million issued and outstanding shares plus 1 million reserve shares set aside for future stock options grants equals 4 million fully diluted shares.

Once you have a command of the valuation being placed on your company, you’ll need to comprehend the many other preferred rights you’ll be asked to give your investors in exchange for their money. This will matter when you get to a liquidation event, because not all shareholders will get paid equally.

4. Preferred stock: Founders and employees of companies get common stock, which gives them bare ownership rights. Investors get stock with rights that are in some way superior to those of common stock; we call this preferred stock. At a minimum, preferred stock gets its money out first, so if there isn’t enough to go around, preferred has dibs and common gets the scraps.

5. Liquidation preference: This is the right to “get out” (get paid) first if the company is sold, merged or otherwise liquidated. What someone is paid usually starts as the amount invested per share ($2.50, in our example).

6. Liquidation multiple: Investors may ask to be paid a premium on their liquidation preference, meaning the company may have to pay back $5 for every $2.50 invested, before common stockholders get anything. That’s a liquidation multiple.

7. Participating and non-participating preferences: A liquidity event produces the potential for a “double dip” for the preferred shareholders. They get paid once in their liquidation preference, and then have the option to get paid again as if they are common shareholders. There are two buckets of money: After the liquidation preference is paid, whatever money is left over gets distributed among common shareholders and those preferred shareholders who wish to “participate.” Non-participating preferred holders take their preference payment, then let the common stockholders take what remains.

So, if the company from our example is bought for $20 million, the preferreds will get their $5 million back (this is without a liquidation multiple) before the remaining $15 million goes to common shareholders. And if they’re “participating preferreds,” they’ll get a share in the remaining $15 million, too. Bottom line: You want non-participating preferreds if you’re a founder!

Bear in mind: liquidation multiples and participating preferreds are most common in high-risk, troubled company situations. If your VCs are using these terms, be careful.

8. Right of first refusal: Investors want to make sure (i) a company’s shares stay within a small group, (ii) that they get an advantageous crack at additional financing rounds. They’ll ask for a clause in your investment documents saying that before you can sell additional shares, you must first let the company and/or the investors buy them at the price offered by the third party.

9. Co-sale right: This further locks things up by saying that if for some reason both the company and the current investor pass on the next round, the current investor can still benefit by selling his shares to a third party, alongside the founder.

10. Participation right: This says that the investor has the right to invest in any new offerings the company conducts.

These are some of the key terms that appear in VC term sheets. I’ll add to this crib sheet over time, so: What terms do you need help understanding?

Jay Parkhill serves as outsourced general counsel to startups and growth-oriented companies, and writes on legal and business matters at his blog, StartupToolbx

Glubble secures second $3m Angel round

Sat, 17 May 2008 12:15:37 -0700

Seeing as fellow Multipacker Jon Roobottom was responsible for the design work for Glubble, this is fantastic news that the product has got huge financial backing from angel investors. I really think there is a huge market for a decent parental control pl

Angie’s List Gets $35 Million in New Investment From Battery Ventures

Thu, 10 Apr 2008 14:47:54 -0700

Everybody’s got an opinion, and if you can collect them together that can be worth quite a bit of money. Angie’s List, one of the largest sites for local service provider ratings, has received $35 million from Battery Ventures, bringing its total funding to $48M. Battery will now hold a minority stake in the company.

Angie’s List was founded in 1995, and provides users with customer reviews on a variety of services, including plumbers, roofers, and handymen. The site has over 600,000 members in the United States, and it soon plans to expand abroad. Users must pay a fee starting at $35 a year to access content, but free trials are granted for a year in cities that have been added to the site recently. According to comScore, its traffic has been flat, with only 214,000 unique visitors in February.

Angie’s List had previously received $13 million in funding, largely from Aquent and BV Capital. Battery Ventures manages almost $3 billion in capital. Competitors to Angie’s List include Yelp and Kudzu.

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IBM (kind of) explains its investment in EnterpriseDB

Wed, 26 Mar 2008 10:50:00 -0700

IBM has got back to me with a terse response to some questions I posed following its investment in EnterpriseDB earlier this week (sample Q&A: Q. Is the investment a response to Sun?s acquisition of MySQL? A. No). What IBM does not say is in fact as revealing as what it does say, however.

Here’s the official line:

“IBM has become a minority shareholder of EnterpriseDB. This affords us an opportunity to continue to participate in, and gain further insight into, the open source community. This complements other experiences such as with the Linux, Apache and Eclipse communities and previous investments we’ve made in Red Hat and Novell. IBM has been a long-time supporter of Open Source communities, and we continue to see interest among our clients for Linux and other Open Sources solutions. This investment supports our overall strategy to support Open Source solutions in the marketplace to further enable our customers to implement business-critical solutions.”

I speculated yesterday on how IBM might go to market with EnterpriseDB to challenge Oracle and Sun, but it seems the company is in no rush to expand its support for EnterpriseDB Postgres Plus Advanced Server. “There is no impact on our product support plans,” is the official line. Advanced Server 8.2 already runs on Red Hat and Novell on System z mainframes and on AIX on System p servers, and IBM is not speculating on support plans beyond that.

IBM also declined comment on potential support for PostgreSQL (either directly or through EnterpriseDB), or why it didn’t simply just acquire EnterpriseDB (although EnterpriseDB CEO, Andy Astor, noted yesterday that the company is “not for sale” in any case.

UPDATE - It was pointed out to me during OSBC that IBM’s investments usually come out of the budget of a specific business unit. Assuming that is the case here, it is worth stating that IBM’s answers were supplied “from the perspective of” the Linux and System p businesses “in consultation with Information Management Software”.

[from bushwald] Venture Capitalists Can't Get Enough of Virtualization - Thank Goodness! | January 31, 2008 08:17 PM | By David Marshall

Sat, 02 Feb 2008 07:56:34 -0800

Lots of virtualization funding going on.

Open-source funding day: Greenplum, Alfresco, Zenoss | Underexposed - CNET News.com

Thu, 24 Jan 2008 13:59:54 -0800

[from bushwald] Annapolis firm nabs $11M in VC - Baltimore Business Journal:

Wed, 23 Jan 2008 10:37:49 -0800

[from bushwald] Alfresco Secures $9 Million in Series C Funding Led by SAP Ventures

Wed, 23 Jan 2008 10:37:48 -0800

Alfresco Secures $9 Million in Series C Funding Led by SAP Ventures

Wed, 23 Jan 2008 10:30:14 -0800

[from swwsman] Who Should Own The Social Networks? " UK Web Focus

Wed, 23 Jan 2008 03:36:30 -0800

[from bushwald] Metaweb Gets $42 Million; There's Hope Yet For Semantic Web

Tue, 15 Jan 2008 08:20:48 -0800

[from bushwald] Engine Yard Takes $3.5 Million Series A From Benchmark Capital

Mon, 14 Jan 2008 09:25:33 -0800

Rails hosting ship gets funding.

[from bushwald] On Rails production performance and monitoring

Mon, 14 Jan 2008 09:25:32 -0800

FiveRuns on the EngineYard funding and overall need for a more solid rails ecosystem for wider rails adoption to happen.