John Prendergast with Jeffries introduced the panel with some statistics and thoughts on what the market looks like and what potential exits could be. So far there has been $1.3-1.9 Billion dollars of investment into open source companies. Exits only equate to about $1 billion so there is a lot more value to be had.
Does anyone care about OSS as a component of valuation?
David Skok, Matrix
Open source and Saas are the newer methods of disrupting. Brand new companies get to go into new entry points and new markets.I would look a lot more closely at open source. Only a few companies will do a good job with their monetization strategy.
I need them to show me that when they go to the customer, that the customer is completely convinced that there is value beyond the software.The top of everybody's list is cash flow. The company needs to generate cash that will create the right kind of return.
Michele Perry, Sourcefire
The brand that you get with OSS is worth more, but that doesn't mean we would actually pay more.
Katherine Egbert, Jefferies
There is no difference in valuation of companies, open or closed source.
Is it OK to pay a high multiple?
Katherine Egbert, Jefferies
First of all there is an understanding that OSS is a way to seed the market. RedHat had a big community long before commercialized RHEL. The subscription model where the payment is upfront gives you the tremendous multiple.I think it's a combination of the brand, the market, and the community.
How related are public market valuations are to M&A valuations?
Katherine Egbert, Jefferies
Every banker is coming with public comps. Good public markets help everyone.
David Skok
Specifically regarding JBoss, many people were just looking at the strategic value. That represented a very interesting and appealing set of customers.
Dewey Awad, Bain Capital
Complete stack providers are looking to compress the aspects of the market that they can control. Open source becomes a strategic weapon.
John Powell, Alfresco
Open source imposes a set of constraints that mean you have to behave in a certain way. Unlike any closed source company we have to think about what we do from day one. It's the differences between the open source and closed model that make things exciting.
What metric do you use to value open source companies?
Multiple on next years cash flow.
Posted by Dave Rosenberg on May 23, 2007 11:22 AM
