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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!
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... :)
>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).
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 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."
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
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
(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...
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