OS & Venture Capital Blog

The biggest open source news so far this year has been that MySQL was bought by Sun Microsystems for a Billion dollars (disclaimer: I was a seed investor in to MySQL). For good analysis check e.g. Stephen O’Grady’s post as well as Stephen Walli’s thougths and for the inside scoop in Jonathan’s post and Zack Urlocker’s post about the process.

Some reactions have surprised me a quite a bit. I have received questions and comments such as that ‘’we lost yet another European high-tech company to the US’’, ‘’does this destroy the promise of open source as MySQL becomes part of this big public company?’’

I would accept the first comment if the company had been sold under priced, but we did not lose MySQL, we SOLD it for 1 BILLION dollars!

This was great news for the Nordic start-up community and especially open source start-up community: a role model and a strong message to the investment community that we can both build great companies in the open source space and we know how to deliver value to the investors.

Now it is time to take the lessons learnt from that case as well as use it as a reference to build the next cases, and I believe we are well on our way.

Just consider the following: right before the news about MySQL/SUN deal, Fortune listed the most expected IPO candidates for 2008, 3 out of 7 were open source companies. Deloitte Touche listed the 10 fastest growing companies out of Finland, that included 2 open source companies, with the top spot going to open source company Nomovok. Helsingin Sanomat had experts vote the most promising growth companies out of Finland, 3 out of 10 were open source companies. In other words there is much more to come and now it is a great time to do it.

I certainly believe there is a bright future for open source and open source driven businesses and I am currently working on with several of them internationally, some that I have already covered in this blog like Ebox out of Spain , or Continuent , which is currently particularly interesting as it is a MySQL partner and we need to see how the SUN deal impacts ISVs like Continuent in the evolving database ecosystem as it is a MySQL partner (and also supports PostgreSQL, in which SUN had invested already earlier).

Something that today’s young entrepreneurs should note about MySQL, it took 12 years to build the business, there are always some exceptions like YouTube where the cashing out happens very quickly, but I would suggest that the timeframe MySQL had is more realistic as a model.

Kevin Harvey said that Benchmark was considered insane to make the investment already back in 2003, what that does make my investment company’s Holtron Ventures team for making the initial investment in 2001? Were/are we stark raving mad? I don’t believe so; I just believe there should be more venture attitude in venture capital than there currently is in Nordics and Europe to build the next MySQL type success stories.

I want to end this post with a quote from Mårten Mickos, CEO of MySQL, which well explains type of things an early investor needs to do and what kind of value they can bring by being insane or mad enough:

“Holtron played a pivotal role in the commercial growth of MySQL by being the first VC in early 2001 to present a term sheet. This contributed to bringing other investors on board, and it also helped me make the decision to join MySQL and not take the other CEO position I was being offered at the time.”

It has been a while since the last major technology exit took place in Finland. iobox Ltd was sold for over 250 million USD to Spain’s Telefonica/Terra Lycos in 2000 and MySQL for 1 billion in January 2008. Holtron partners were involved in both companies and exits.

iobox Ltd. was the second largest venture capital financed technology exit in Finland after MySQL. The total cash exit value of these two companies was over 1,25 billion USD.

For more information, please see the following links.

HS Article.

Sun MySQL Acquisition Press Kit.

Sun Growth Strategy Accelerates With New Position in $15 Billion Database Market

SANTA CLARA, CA January 16, 2008 Sun Microsystems, Inc. (NASDAQ: JAVA) today announced it has entered into a definitive agreement to acquire MySQL AB, an open source icon and developer of one of the world’s fastest growing open source databases for approximately $1 billion in total consideration. The acquisition accelerates Sun’s position in enterprise IT to now include the $15 billion database market. Today’s announcement reaffirms Sun’s position as the leading provider of platforms for the Web economy and its role as the largest commercial open source contributor.

With millions of global deployments including Facebook, Google, Nokia, Baidu and China Mobile, MySQL will bring synergies to Sun that will change the landscape of the software industry by driving new adoption of MySQL’s open source database in more traditional applications and enterprises. The integration with Sun will greatly extend the commercial appeal of MySQL’s offerings and improve its value proposition with the addition of Sun’s global services organization. MySQL will also gain new distribution through Sun’s channels including its OEM relationships with Intel, IBM and Dell.

“Today’s acquisition reaffirms Sun’s position at the center of the global Web economy. Supporting our overall growth plan, acquiring MySQL amplifies our investments in the technologies demanded by those driving extreme growth and efficiency, from Internet media titans to the world’s largest traditional enterprises,” said Jonathan Schwartz, CEO and president, Sun Microsystems. “MySQL’s employees and culture, along with its near ubiquity across the Web, make it an ideal fit with Sun’s open approach to network innovation. And most importantly, this announcement boosts our investments into the communities at the heart of innovation on the Internet and of enterprises that rely on technology as a competitive weapon.”

MySQL’s open source database is widely deployed across all major operating systems, hardware vendors, geographies, industries and application types. The complementary product line-ups will extend MySQL’s database reach and are expected to bring new markets for Sun’s systems, virtualization, middleware and storage platforms.

“The combination of MySQL and Sun represents an enormous opportunity for users and organizations of all sizes seeking innovation, growth and choice,” said Marten Mickos, CEO, MySQL. “Sun’s culture and business model complements MySQL’s own by sharing the same ideals that we have had since our foundation — software freedom, online innovation and community and partner participation. We are tremendously excited to work with Sun and the millions of members of the MySQL open source ecosystem to continue to deliver the best database for powering the modern Web economy.”

MySQL’s open source database is the “M” in LAMP - the software platform comprised of Linux, Apache, MySQL and PHP/Perl often viewed as the foundation of the Internet. Sun is committed to enhancing and optimizing the LAMP stack on GNU/Linux and Microsoft Windows along with OpenSolaris and MAC OS X. The database from MySQL, OpenSolaris and GlassFish, together with Sun’s Java platform and NetBeans communities, will create a powerful Web application platform across a wide range of customers shifting their applications to the Web.

More than 100 million copies of MySQL’s high-performance open source database software have been downloaded and distributed and an additional 50,000 copies are downloaded daily. This broad penetration coupled with MySQL’s strength in Web 2.0, Software as a Service (SaaS), enterprise, telecom and the OEM embedded market make it an important fit for Sun. With MySQL, Sun will have the ability to deepen its existing customer relationships and create new opportunities with companies seeking the flexibility and ease-of-use of open source systems.

Following completion of the proposed transaction, MySQL will be integrated into Sun’s Software, Sales and Service organizations and the company’s CEO, Marten Mickos, will be joining Sun’s senior executive leadership team. In the interim, a joint team with representatives from both companies will develop integration plans that build upon the technical, product and cultural synergies and the best business and product development practices of both companies. MySQL is headquartered in Cupertino, CA and Uppsala, Sweden and has 400 employees in 25 countries.

As part of the transaction, Sun will pay approximately $800 million in cash in exchange for all MySQL stock and assume approximately $200 million in options. The transaction is expected to close in late Q3 or early Q4 of Sun’s fiscal 2008. Completion of the transaction is subject to regulatory approval and other customary closing conditions. The deal is expected to be accretive to FY10 operating income on a GAAP basis.

The management teams of both companies will host a media and analyst conference call today at 10:00 am EST, 7:00 am PST. The call can be accessed at http://www.sun.com/investors. For those unable to listen to the live conference call, a telephone replay will be available for one week following the call by dialing (888) 566-0103 or outside of the U.S. by dialing (402) 998-0958. No passcode is required to access the replay.

Link to the article

Just because a recession may be near doesn’t mean businesses don’t need to cut costs and innovate, and a bevy of would-be public tech firms are lining up to help out.

By Michael Copeland, senior writer

SAN FRANCISCO (Fortune) — Just because the U.S. economy might be looking at a recession, doesn’t mean a few good tech IPOs can’t light up the market. While no company is fully immune to economic retraction, the most promising technology companies have the advantage of a global marketplace in which to sell their wares. So if U.S. markets hit the skids, companies can always focus their efforts on Asian or European customers.

And in some ways, recession can help young companies focus their offerings. If 2007 was a good indicator, the kinds of private tech companies that will make it into the public markets this year feature either a technological innovation or a business model innovation that gives customers lower costs, more flexibility or both. So-called on-demand software companies like Success Factors (SFSF), K12 (LRN) and more recently NetSuite (N) managed to get out the IPO door on the back of their business model innovation (though not all have been great performers in the aftermarket). Open-source, more a technology movement than a technology innovation, is another category being welcomed by the Street, as is virtualization, the ability to have one computer essentially act like several.

And while there are tech companies in all these categories that hope to repeat the successful public market debuts of the class of 2007, they may face a higher bar in terms of financial health and heft that investors want to see. In general, after the bubble burst in 2001, companies needed about $100 million in revenue and $10 million net earnings to be an IPO candidate. Lately, though, private tech companies have been going public by simply showing revenue growth, ideally a lot of it, and scant profits haven’t kept them from going public. But if things head dramatically south in the U.S. economy, expect earnings to be back on the table if a private company wants to tap the public markets.

Here are some IPO candidates to keep an eye on:

MySQL. One of the most anticipated tech IPOs of the coming year, MySQL is the leading open-source database company on the planet. Its software might not have the bells and whistles of Oracle 11, but it also comes at a much cheaper price. According to the venture capitalist lunch chatter, MySQL is expected to file very soon.

Ingres. From 30,000 feet Ingres looks like a competitor to MySQL, but actually focuses on another part of the database food chain that is more competitive with Oracle (ORCL, Fortune 500). Another open source company, it has the heft, approaching $100 million in revenue and is cash flow positive. It is widely expected to file for a public offering by mid-year.

SugarCRM. Yet another open-source company, it offers, as its name suggests, software for customer relationship management, things like sales force automation and customer support. It is also on-demand. Think of it as an open-source version of SalesForce.com (CRM). The word is that it is cash flow positive.

ExactTarget. A slew of software as a service companies got out the IPO door in 2007, and on-demand e-mail marketing company ExactTarget has filed with the SEC to join that group in early 2008. And get this: unlike some of its on-demand peers, it’s profitable. For the first nine months of 2007, revenues came to $34.2 million, up from $22 million during the same period in 2006. Earnings in 2007 were $2.1 million. The comparison here is competitor Constant Contact (CTCT), which went public last October. And although Constant Contact got out first, the chatter about ExactTarget has been nothing but good.

Parallels (formerly SWsoft). The virtualization technology company has more than doubled revenues every year for the past eight years, so it’s got the track record. And its products are giving VMware a run, especially in the small- and medium-business marketplace. Just find someone who uses Parallels and they will not stop gushing about it. Given VMware’s successful IPO, you can bet the SWsoft executive team and their investors including Intel Capital, Bessemer Venture Partners and Insight Venture Partners are looking hard at their IPO options in 2008.

I am heading back to Zaragoza to speak and attend at the 2nd Open Innovation event on the 20th, and I certainly am excited about it for a number of reasons, not least because of the great entrepreneurship the country currently is providing.

Secondly Spain seems to have disproportionate amount of open source developers compared to many other countries.

I don’t quite understand the reason for this, but I hope to find out, as well as very thriving entrepreneurship scene as Ignatio has already noted and good number of young Open Source businesses as Stephen has commented on. I am looking forward to talking to as many of them as possible.

Disclaimer: I am on the board of Ebox & have been involved in setting the event up.

- Mikko

Link to Times Online article

November 8, 2007

Similarities to other massacres - but this was a very Finnish affair

In the old days Finns used to believe in the dark power of Tuonela, the mythical land of the dead. Now they believe in YouTube, the land of the virtual living.

The crazed marginalised teenager who takes out his frustration on his teachers and schoolmates, who chases them through classrooms like mice in a maze, has become a universal phenomenon: the massacres at Virginia Tech, Columbine and Erfurt in Germany conformed to a pattern. A pupil is snubbed, is deemed a failure, and retreats into an interior world that structured by his computer, video games that tap his inner aggressions, throbbing downloaded music and a locked room.

Sven Christianson, professor of psychology at Stockholm University, said: “There are distinct similarities with Virginia Tech. It could well have served as an inspiration.”

Above all, the young killer’s presentation of himself with weapons — a method favoured by Cho Seung Hui at Virginia Tech — suggested someone with low self-esteem trying to build himself up. The recorded warning of an impending bloodbath suggested a narcissistic personality, a youth determined to exert control, to choose between life and death.

Yet despite the common features with other massacres, the shoot-up in Tuusula was a very Finnish affair.

Finland is a land of wide open spaces, barely 120 people per square kilometre. Lakes often separate neighbouring farmsteads. At this time of year it is sunk in almost permanent half-light and Finnish families count the days to their winter holidays when they can flee to the bright sunlight of south-east Asian resorts.

Clinical depression is high, the suicide rate too. But above all the Nordic winter isolates the young in the small towns: they arrive at school in the dark and leave it in the dark, travelling long distances to their homes. Friendship in the traditional sense is often a summer luxury.

And so friendship becomes virtual. The social networking sites are switched on the moment the Finnish teenager returns home. YouTube substitutes for television, which is regarded as dreary and middle-aged. About 75 per cent of all Finns use the internet. And Finland, the cradle of Nokia, has some of the cheapest mobile phone rates in Europe. Kids as young as 6 take mobiles to school; a child’s first text message is a matter of parental pride. None of this is unusual for modern Europe, but in Finland the high-tech world has become a normal, rather than an exceptional, substitute for the world of human contact. A youth isolated at school sinks even deeper into isolation when he has left the school gates: a recipe for trouble. Even more so in a country where guns are so readily available; Finland has the third-largest per capita ownership of handguns in the world.

The youth who ran amok signalled his intentions using the codename Sturmgeist89. The word means “storm-spirit” in German and probably refers to a Norwegian heavy metal band, but it provides a marker of sorts: when he took the gun in his hand he seems to have imagined himself as a hero, a corrector of wrongs. There is nothing very modern or YouTube-ish about that self-image. In ancient times the Finns used to worship Ukko, the mythic god of the sky and thunder.

Yesterday, invoking new gods and myths, an 18-year-old brought thunder down on a small frozen township. It was a sign of disturbed times — but also a very Finnish tragedy.
Murder ‘manifesto’

“I am a cynical existentialist, antihuman humanist, antisocial socialdarwinist, realistic idealist and godlike atheist. I, as a natural selector, will eliminate all who I see unfit, disgraces of human race and failures of natural selection. You might ask yourselves, why did I do this. Well, most of you are too arrogant and closed-minded to understand. I am ready to die for a cause I know is right, just and true. This is my war, my ideas and my plans. Don’t blame my parents or my friends. I told nobody about my plans and I always kept them inside my mind only. Don’t blame the movies I see, the music I hear, the games I play or the books I read. No, they had nothing to do with this. This is my war: one man war against humanity, governments and weak-minded masses of the world! HUMANITY IS OVERRATED! It’s time to put SURVIVAL OF THE FITTEST back on tracks!”
Pekka-Eric Auvinen on YouTube

Google introduced their mobile open source initiative called Android. Android is aiming for low end smart phones. Open source operating system will save Google hundreds of millions and fasten application development. Nokia saved about EUR900 million by releasing N770/N800 on Debian GNU/Linux (see Rishab Aiyer Ghosh presentation). Android/Google will also avoid super expensive Nokia/Symbian/Windows licensing costs and this way release low end phones.

With Google name and previous OS tools, developers are certain to jump on board. We shall see next year how phones and operating systems will work and in what scale. US carriers are known to restrict access their platforms/phones and Sprint seems to be the first one to adapt mobile OS. In Europe it is up to phone manufacturers to launch their phones. Even Nokia announced to ‘consider’ Google as a option for their operating system.

The following is based on Daniel Gibbons comment on TechCrunch.

MySQL has 25% of global DB market share (unbelievable achievement)!!! DB market is worth $15Bn. MySQL 2006 turnover was around $50m. This is only 0.3% of DB market annual value. 25% vs. 0.3% !

Interesting…

Finland has the the hottest global start ups today! Jaiku was recently acquired by Google (rumor says for $12m). Helsinki based Dopplr.com has not even had official launch yet but has loads of positive buzz around the Internet. Investors include Martin Varsavsky, Joichi Ito, Saul Klein, and Reid Hoffman. Gofresh is a company founded by Finns and has over 700.000 mobile users in their ‘mobile social network’ site. This makes Gofresh the worlds leading mobile social community!!!!

Keep watching these companies! They will be next Linux, iobox and MySQL’s…

As I am happy to report a number of people have responded on my initial challenge of 3+3 lessons on building open source business, I wanted to post the links so far, enjoy:

Mårten Mickos, CEO of MySQL

Stephen Walli, an Open Source Expert

Ignacio Correas, CEO of Warp

Stephen O’Grady, Redmonk

Michael Tiemann, President of Open Source Initiative

Manel Sarasa, CEO of Openbravo

Javier Soltero, CEO of Hyperic

Amy Jiang from China

Christopher T.Kuhn

Luis Villa

I have already learned a lot, thanks to everyone who has contributed so far!

Ps. If I have missed some links, please let me know at mikko.puhakka at gmail.com