Slashdot Mirror
Red Hat Ventures To Fund Open Source
joel_archer writes "According to this article on C|Net Red Hat Ventures division will take $500,000 to $2 million stakes in new companies specializing in open-source software and Internet infrastructure technology. Red Hat said it hopes to identify new business opportunities through the funding of start-ups. "
This just goes to show how much perspective people have lost. RedHat's revenues for the last four quarters totals about $24 million. The market valuation is around $3.5 billion. Ratio of cap/rev=145.
Now, take AMD as a counter example. Revenues for the last 4 quarters totals around $3.1 billion. Capitalization ~= $13 billion. Ratio=4.2.
And that doesn't even count earnings after expenses, etc. Of course, RedHat has yet to earn anything.
First, make it work, then make it right, then make it fast, then, make it bloated!
Not sure what ticker you're looking at, but I want to sell on that market. On EVERYONE ELSES market, RedHat stock is doing well, but certainly not stupendous and overvalued. Perhaps back in January, but certainly not today..
-- I'm the root of all that's evil, but you can call me cookie..
You must not understand how public financing works. Red Hat got four billion dollars in cold, hard cash on IPO day and they can do whatever they like with it. The day-to-day trading price of their stock does not affect their bank account. It only affects them in a few situations, such as when they want to raise more money by issuing more shares.
-JD
Bob Young annouced Redhat software's newest investment plan. Called "extend and embrace" Redhat plans to fund starting open source projects, then gobble them up and redistribute them under the Redhat label once they become profitable. Redhat is believed to be doing this to improve their stock prices, which plummeted when everyone realized that you shouldn't pay for milk when a cow is free.
Said one RH investor, "Yeah, turns out this linux thing is free and you can download it for almost nothing off the internet. Guess you don't have to pay $80 for it from Redhat after all. Oops."
In an unrelated comment Mr. Young was quoted as saying "640k should be enough for anyone" and has begun spending way too much money on a house in washington.
So far I've gotten all my Karma from telling people they are wrong... :)
What is so imaginary about the IPO-generated money?
Beats me. They take it at my bank and the IRS seems to like it.
I think he means shares. If they're offering stock swap, then it could be considered funny money, but cash is still cash in my books.
Will in Seattle
Perhaps this could be considered "open source R&D" on Redhat's part. Instead of in-house, find an idea (hypothesis) that is promising and let the outside source develop it. The hypothesis would be considered 'true' if the idea turned out to be viable in some form Defining what's promising, and what would be viable in the end - well that depends on how Redhat defines them. If it's stricly by $$'s then new projects will be less daring and more profit oriented (applied R&D). If Redhat is more community benifit or pure Research oriented, then expect to see some more far out projects that wouldn't see the light of day because they don't look to ever make a profit.
W9x:Thanks for the make-work project Bill.
employee around 10-12 people for one year
purchase around 200 cutting edge Intels workstations
purchase around 50 cutting edge Intel servers
purchase around 20 Sun workstations
advertise for 5 seconds during the Super Bowl .45 secs of the Super Bowl.
So, 1 person = 18 Intels = 1.8 Suns =
Company A has 3 employees, each with a desktop. Further, they have a dev box and prod box. Next, they need an office to put it in. Given one year, they would then be spending around $250,000, before marketing.
$2M would be alright for first round VC money for one company with a handful of employees. Second and (sometimes third) help with production crunches--when money coming in is less than what will be, but more employees are necessary to keep up with demand. This is typically at least $5M, so you can hire people to hire people, get an accounting dept., lawyers, etc.
Seems to me that they are looking to absorb new technologies rather than generate companies. These prices seem more like purchasing prices than VC. In other words, they may be buying first refusal from companies that already exist and will never go gangbusters (like Visicalc).
>Red Hat got four billion dollars in cold, >hard cash on IPO day No they didn't! Man, people get a clue. They got something like $76 Million from their IPO and something like $300 Million from their secondary offering. Lots of cash, but certainly not billions. (I might be a little off on the figures, but the order of magnitude should be correct).
You asked how RH could fund this venture, implying they had no money to do it with, and I revealed to you that they have plenty of money. Now, is it a good idea? That's a seperate question, and beside the point of my post.
And they aren't giving away money. They're investing it.
-JD
Sure, but if you look too far forward, something unexpected comes along in the meantime and smacks you silly. It might take RedHat 5 years to achieve the size you talk about. In five years, they may no longer even be the top Linux seller, much less a challenger to Microsoft. The legal landscape could easily turn against open-source software. Their investments might turn sour. A 3 billion market capitalization is looking way too far in the future for RedHat. They don't really have much of a history of revenue growth even. The fact that you're here saying 10% of Microsoft is reasonable is scary, cause when people think like that, they buy it on margin, and then when it drops another 50% (no, that couldn't possibly happen!), they have to sell, and then sell something else to cover their margin debt. That's what makes the market fall so fast and so hard after people get too optimistic and dreamy-eyed.
First, make it work, then make it right, then make it fast, then, make it bloated!
Is it just me, or does:
"Identify new business opportunities through the funding of startups"
Sound suspiciously like:
"We don't know where to go now, but we want to be the MS of the new millenium -- so we'll throw a bunch of money at a bunch of projects, and see which ones take off -- once they become profitable, we'll "acquire" them"
Sort of like them saying (now) "Here's 10k to fund your open-source project" -- then 3-4 years down the road "Hey, remember when we gave you that 10k? We own your @$$. Join us."
Admittedly, with it being open-source, it's substantially better than MS's tactics of "let someone else come up with the good stuff, then either buy them, or make something similar, proprietary, and bundled into the OS that everyone will use instead, because we give them no choice".
$$ for open-source startups is cool - but I can't help but be skeptical when large corporations are involved. Seldom do they do things because they are "right" -- most often they do things because they are "profitable"...
I guess we'll se how it turns out - I could be completely wrong.
I just hope that Red Hat doesn't use this money to bribe start-ups to use Red-Hat-standards. I'm not accusing them of anything, but it seems like it would be so easy to say "Here is all this money you can have, but you have to make your product work such and such way so that it works well with our distribution." If Red Hat really intends to help startups and encourage REAL inovation, then more power to them. (but not too much) I just wonder how they plan to get their monetary return from this as they clearly expect to.
How am I supposed to hallucinate with all these swirling colors distracting me?
I have to admit... I had a simialr though slightly different first reaction.
My first reactionw as "Red Hat is dumping their imaginary IPO-generated money into other things before people realize its imaginary."
But I have to be slightly fairer to Red Hat. Given the number of people I've seen usign the red Hat name I assume they are actually making SOME kind of money in license fees... which is more then can be said for most Linux companies.
Still, I read their stated interests as two-fold:
(1) Encourage open software == hope to create more products they can sell without having to do actual development work themselves.
(2) Internet Infrastructure -- A relatively safe-haven for high tech IPO money against the day investors realize comapneis need to turn real profits to be worth anything.
In re 2... I have a saying based on 20 years in bleeding edge development.
"In any gold rush, the guys gauranteed to get rich are the ones selling shovels."
to me - sure, there's all the cynics suspicious of some kind of conspiracy on RHAT's part (I mean, looking at who's top dog, no wonder!) but it seems that the more open source floating around the more they have to fold into a coherent, integrated distro - just like all the other distros, you know, more OSS projects floats everyone's boat, that sail in these waters anyway.
more here
try { do() || do_not(); } catch (JediException err) { yoda(err); }
Not that I can blame you, either!
If the startup they invest in takes off, they may be able to harness the energy, the product, or the community, but to acquire and control it would, I think, destroy it(as you have said). Because it's open source, they don't have to acquire it to reap the rewards, so that may not be an inevitable thing.
I don't know that you want a corporation, an otherwise souless entity, to do things because they are 'right'. Individuals and persons can choose, but corporations are almost always products of groups. What is right for a group is not always what is right for the individuals in the group. By working on profitable, a twofold benefit is achieved. Any good the corporation brings into the world is sustaining, as the corporation is in no fear of collapsing due to unprofitability. If the corporation is profitable, then there will be copycats, so then the good of the company is multiplied by that of it's copycats.
At least, I think so.
-AS
-AS
*Pikachu*
If I were to play the causality game, I would hazard a guess that the fall in valuation has more to do with yesterday's news:
Somewhat interesting read, mentions andover.net, too, and how it might have factored into Red Hat's decision.
...so that companies like Microsoft and AOL have a way to tear us down.
See t his
try { do() || do_not(); } catch (JediException err) { yoda(err); }
Hmm, I find myself in a conspicuous minority here. I neither hate Red Hat nor think they are making a good move by investing in Open Source development.
The whole point about Red Hat is packaging, and I do not mean the graphics on the pretty box. They take some enigmatic element of Linux (e.g. install, adding packages, etc.) and make it usable and accessible to a strata of people who probably otherwise would not use Linux. They cater to the demand side - people want a stable OS without much hassle, and they deliver.
I wish they would look at Open Source from the demand side too. There are solutions to a great many problems already in existence out there, needing only the proper PR and "packaging" to bring them into wider use. If Red Hat devoted their money and energy to the packaging and promotion of existing technologies, it would be money and effort better spent in the cause of proliferating what most of us believe is a better way. It would most likely feed back to their greater concern now that they are public - their bottom line.
-L
Since when is investing money in another company to make more money a ponzi scheme?
"Ponzi scheme" describes a very specific situation where you take people's money, promise them insane percentages in interest, and pay them using the money of people who sign up later. Usually the first round of suckers will reinvest the gains in the same place after getting paid off, and attract new suckers as well. Eventually the perpetrator flees with all the money, and it all collapses.
That's not what's going on here. Ponzi schemes require a certain amount of deception. Red Hat has not promised anyone any fixed amount of return on investment and is not deceiving anyone. Their investors bought shares in spite of the well-known fact, which was no doubt printed in the prospectus, that Red Hat is not expected to make money anytime soon.
I think this misperception may have come from the widespread idea that Red Hat's capital is somehow "not real" and "only on paper." Let's set it straight: when you buy shares in a company, you pay them cash and they give you a piece of paper. The money they collect from these transactions goes into their bank account and they can do whatever they like with it. If they in turn invest in other companies, that is perfectly legitimate. In fact, there are publicly traded companies where that's all they do with their capital: invest in other companies in hopes of turning a profit thereby.
-JD
RedHat's revenues for the last four quarters totals about $24 million. The market valuation is around $3.5 billion. Ratio of cap/rev=145.
The market does not value a company based on its current earnings but rather on expected earnings.
Look at it this way... Right now Microsoft is valued at something around G$300. Redhat is valued at about 1% of that. Does the market expect Redhat to achieve as much as 1% of Microsoft's sales/earnings? You bet it does. In fact, 10% is a much more reasonable goal and by that measure Redhat's stock still has a lot of room to appreciate.
Ironically, the way Microsoft is playing it these days they may also be destined to achieve 10% of their current earnings.
--
Life's a bitch but somebody's gotta do it.
So I'm in a board room...
Wow, have you guys seen our stock price today?
Yeah, our valuation is off the charts, and it keeps going up?
Yeah!!! People believe in us! So, how should we earn a return for our investors...
Uhhh....
I've GOT it!
What?
We'll invest the money people invested in our overhyped company into new companies, so when they go public and get overhyped, we'll make that return!
You're brilliant!
I know, I'm off to file with the SEC to sell some stock...
Alex
...what exactly they'd be willing to finance? For instance - if there wasn't a slashdot, and Rob proposed the idea, would they go for it? It definitely would "extend" the whole linux cause...
Does it have to be hard core technical stuff - or can it be media/advocacy? Or even a major content site that has little/no content on Linux - but is built using those tools, and expands on the existing tools... hence giving back to the Linux community in the process.
BlackNova Traders
I know there will probably be some people who will complain that this move will allow RedHat to have more control over the free software community (by controlling more of the core software developers) but I think that overall this is good news - wherever the people obtain their funding or venture capital from it all benifits the community. Also, being seperate companies from RedHat it is unlikely that they will control them directly at all.
Funding for new companies has been one area which has been relatively neglected. Although hobbyists do an excellent job (kudos due) I think that to penetrate into the mainstream market Linux/BSD/whatever needs companies to both write software at an increased rate with better resources, but also to direct resources into areas such as documentation which traditionally has recieved little attention (compared to say the technical aspect of the software which is nigh on excellent).
Money was well used IMHO when Keith Whitwell received a donation from id software to enable him to take further leave from work to finish writing a section of the Mesa project. Similar funding in the future, in a similar vein to contract work to work on a certain part of a piece of software, would be benificial to the community as well.
In short - the more funding the better. And there is more of it around than there used to be, which is generally A Good Thing (tm).
--------
"Registry error. Switch off or install Linux to continue......"
(The Beatles did the same thing, with their Apple record label, and nearly went bankrupt.)
"So, be more selective!"
If you know the results beforehand, there's no point in doing the work. If Red Hat knew what people will want in 10 years time, they wouldn't be gambling on start-ups. They'd be hiring some developers themselves, producing the stuff and making a fortune.
"So, be more restrictive!"
That's not easy, with this kind of gamble. Miss out on the Next Big Thing, you risk someone else getting the kudos & cash. Miss out on several, and you risk going under. But if you don't know which those are, you HAVE to throw a lot of money out to be sure of limiting the risk.
But, if the cost of minimising the risk exceeds Red Hat's budget, then either path is a path to oblivion.
Too many skilled inventors have been turned down by companies, and too many hackneyed ideas have been funded, to be sure Red Hat has any hope, going down this road. If it works, and they somehow figure out a way to fund just the Dream Designs, more power to them! But I'm going to stay cynical until I see it happening.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
Yes, the whole market is down today. But of the 15 or so tech stocks I track, RHAT is at the bottom % wise today: -13%. I gotta say, not too surprising... as a RHAT stockholder I can't say I'm really pleased either. People look on Linux as being pretty speculative in the first place (at least as far as business prospects go) so then to go out and say "hey, we're extending our already speculative business model - we're going to go invest in more new technologies!" probably doesn't sit too well.
I'd be happy if they'd dump that $2 million into helping get Linux truly ready for the average user's desktop - before Microsoft does it for them with Word for Linux, or whatever...
---
People stop preaching doom on RedHat. They've shown themselves on numerous occassions to be a good neighbor in out little community. They've earned our trust. Some of you just watch to much of the X-Files. If we can't show a unified front then we allow chinks to open so that companies like Microsoft and AOL have a way to tear us down.
RedHat's stock is down, so what.. a lot of tech stocks are down.. it's a market thing.. they go up and down. Be smart and take this chance to buy all you can afford. The market value, it seems to me, of a company is more politics and media glitz than profits. The actual profit being made is largely in the stock value itself. That is what allows these companies to exist and grow. This is nothing new. If you want RedHat to do better then go buy it's stocks. Higher demand can only mean it becomes worth more.
This is great news that RedHat is helping others in our community grow. I hope they take the next step and do some angel investing and possibly give advice on what it takes to start a company from a free software project. The more OSS companies we have that are doing well the more OSS programmers we have that are well fed and able to spend their time coding for us.
(Note: First post glory hounds should be circumsized with dull rusty spoons.)
At what price learning? At what cost wisdom? The price is a man's peace of mind, and the cost is his life.
My first reaction was "Red Hat is dumping their imaginary IPO-generated money into other things before people realize its imaginary."
What is so imaginary about the IPO-generated money?
--
bgphints - internet routing news, hints and ti