Could Mandrake Sell Stock To Users Who Love It?

An anonymous reader writes: "Tech stocks are in the toilet and the word Linux makes investors curse right now, but Mandrake is talking about an IPO. Business writer Jack Bryar suggests a way Mandrake could go public in spite of Linux's bad rep on Wall Street: by selling shares to loyal users the same way the Green Bay Packers sold shares to local football fans who wanted to 'be part of the team' but didn't necessarily expect to make a profit. Do you think enough people love Manrake enough to make this work? I might buy $1000 worth myself if they did this, just for the hell of it. Would you?" It's an interesting idea, not necessarily limited to Mandrake either, though that does sound like a good first candidate.

Comments

Re:Huh?

[MAXOMENOS]

Absolutely you should be doing all of those things. However, buying a piece of the company wouldn't hurt either, especially considering that this would give us users more of a voice in the way that the company is run. Not to mention more of a motivation to get off our tushes and contribute something. :)

ObJectBridge (GPL'd Java ODMG) needs volunteers.

Basic economics & specialized labour

[xtal]

This assumes you're a programmer will skill in the area. If, for example, I'm an embedded systems guy (which I am), I might not have time to learn what mandrake needs. However, if I'm very successful, I'll command a high salary and make lots of money. I can help buy providing resources to hire someone who does have the expertise to aid in the development of the project, with the results of the $ going back out into the open source community. This seems to work really well - why would it go against the model? Obviously, this assumes you use the product and provide feedback, or you wouldn't know about it or that it needed work.

To use another classic example: If you're a lawyer and make $150/hr, and you need your house painted. The job will cost $500 and take 16 hours. You'd be stupid to save the $500 by working those 16 hours; you could do what you do best, and pay the specialist to do the work. Same applies to car repairs, etc. If painting is your hobby - like coding is for myself and others - that might be different, but for most people, that's not the case.

away goes troubles down the drain

[joq]

Personally I think this would only help in a short term manner, and here's why. So you plan on selling say 100,000 shares of Mandrake stock at let's be fair with the price, in accordance to whats going on around NASDAQ, 6.00 (US) which would give Mandrake an extra 600,000.00 US which is enough to hold them for a short while.

A team of 20 developers at 35,000.00 a year would leave the company 100,000.00 a year under, not including office space, equipment, etc. So unless they plan on selling a massive amount of stock with people willing to continously buy from them, how could they expect to recoup any money to pay back investors who purchased it from them?

So there stock goes up let's say to twice that amount, because more people think it's a good idea. Ok eventually they'd still have to turn a hell of a lot of profit to keep the investors happy else they'd fall miserably, as many companies have within the past few years.

I wish them the best, but I doubt it would work. If you take a look at some of the strong companies in their field, let's say Baltimore Technologies, which is one of my favorites. They specialize in security based products, and have a strong market segment, yet their stock is doing poorly (under 3.00) so what makes you think a company like Mandrake could cut it in the market, when proven companies are having a hard time...

© Pimpfolio ghetto stocks all the time

Some possible reasons why they havent

[selectspec]

There are literally dozens of various instruments that Mandrake could employ to sell equity. The reasons they don't are as follows in ranking order:

1. Honest Greed. The current owners believe their equity is worth more than the probable market perception. If this is correct, the sale of equity could result in a higher than tolerable cost-of-capital. In such a case, the company may have better alternatives to raising capital, such as through various debt instruments which may provide a lower cost-of-capital or even aquistion.

2. Tax. Publically traded companies must register as C-Corps. Mandrake may not already be a C-Corp, and probably is an S-Corp. S-Corps allow for pass-through-accounting, so the corporation doesn't pay any taxes (the owners pay the taxes or in this case write off the loses). I could be the FUD master here (I'm not an accountant), but this is a possible reason.

3. Legal Mumbojumbo. Publicly traded companies must follow strict rules and regulations regardling disclosure and accounting. These restriction can severely impare smaller organizations which are still attempting to establish themselves.

Re:That's kinda how stocks were supposed to work

[MrBlack]

It worked for Warren Buffett. One of his ideas was to buy stocks in companies with products he liked and used, and companies with products he understood. The difference between what Warren B. advocated and what XTAL seemed to be suggesting (although I'm not taking his casual comments here as XTAL's opus on investing) was investing in companies with a monopoly. The acid test was "If I have a huge supply of capital" (which Warren Buffett no doubt does) " and if I had access to all the top talent in this industry, what companies would I still be unable to compete with." With a strategy like this (and the fact that Warren is friends with Bill Gates) it is amazing he's never invested in Micro$oft. He said he never did because he didn't understand the software industry.

Interestingly

[rhadamanthus]

Well, not surprisingly anyhow, the Green Bay Packers probably have the best attendence and loyalty of any team in the NFL, simply because they are "part of the community" (and also, i'd bet, because they are "owned" by the community). I'd buy stock just to show my support. Naturally however, as a bonus to Mandrake, I would be hard-pressed to buy from any other linux distributor.

Sounds like a cool idea...

--rhad

Donations

[cavemanf16]

Usually when I invest in something, I expect to make money doing so. This is just another way to promote donations. I donate to charity, not corporations.

That's kinda how stocks were supposed to work

[xtal]

The stock market per se is just a way to target a more general (and much bigger) audience of investors, some (most) of which who have absolutely no idea what you do, how your product works or is engineered, etc. If you read the all time classic (in what, it's 18th printing?) How to Buy Stocks, back in the day, you knew the people who invested and ran the company.Stocks were a way to measure the amount of the investment to judge who gets what share of the profits/rewards. This has been missed by the markets, somewhere.

Would it work? Well, I'd buy some redhat if I had spare money, because I like the product. I bought a lot of Palm when the stock went down, because I like that product, too, and work with it. Same thing for AMD. Mandrake is just the same thing continued, although I'm not a mandrake user.

People are kinda supposed to understand what they're investing in, which is why I find the market insanity amusing. I buy products I use and like, and I haven't been clobbered for it e.g., 3M car wax.. 3M stickies.. 3M abrasives.. hrmm... 3M.

My advise to investors is, ask yourself: "Do I use this product? Do I like it? Do I understand it? Would I pay money for it? Would anyone else? Does that matter?", and you'll find the answer quite clear. This looks like a good idea to me, though - support a product you use and like to development continue, and you might see a return on it someday.

I'd rather just donate...

[wrinkledshirt]

That way, they can concentrate on making great software instead of what will make the shareholders happy. Mandrake's developed a reputation as a good newbie distro as well as a cutting-edge distro for the not-so-newbie. More importantly, they've garnered their own mindshare within the industry. I think developing a body of shareholders might influence them to go one way or the other. As well, this sort of move might open up the way for other business-centred moves, like (eg) letting themselves get bought out by another company.

I think, if they have a good solid foothold in the industry that can't be usurped by another company, the way Red Hat does, they might want to try going public. Until then, doing so might make them even more vulnerable to the manipulations of the business-minded.

Actually, they can.

[MAXOMENOS]

As the article stated, the SEC would most definitely allow this under Regulation A. Quoth the article:

That doesn't necessarily mean that a Linux company can't have a successful stock offering. In fact, smaller U.S. Linux companies don't need lots of lawyers, or even a terribly convincing bottom line to offer stock. They simply need a community that rabidly supports them, pure financial considerations aside. The best fund-raising vehicle for such companies looking to raise $3 million to $5 million is called a Regulation A offering.

In the caffeine-crazed Pacific Northwest, one of the most successful Reg A filings in recent memory was for Tully's Coffee, a cult-like business that sold common stock back in 1997 at $2.25 a share. Unlike a traditional IPO, Regulation A allows companies to promote their stock offering to their enthusiasts, through radio, direct mail, or other devices. Tully's employees wore buttons that said, "Ask me about our stock," and the company promoted the offering on its coffee cups. Reg A offering tend to work best for companies with an affinity group -- a set of customers who are so loyal they'll buy stock as well as product, essentially underwriting their financial investment by their continued patronage. Regulation A is tailor made for the Linux community. For those companies whose evangelists vastly outnumber their paying customers, this might be a reasonable way to raise needed cash.

I'm thinking that Mandrake could (for example) offer a GPL-version copy of their software and five shares of MandrakeSoft for (say) $80, via their website.

ObJectBridge (GPL'd Java ODMG) needs volunteers.

Huh?

[jasno]

Doesn't that kinda go against the grain of the open source model? If I want to contribute and help out mandrake, shouldn't I be writing code, giving feedback, using the product, writing documentation, etc? Think about the amount of money a professional programmer makes and the amount of money you'd have to give in order to get something done. Why not just contribute? Sure, you may not help them survive as a business, but why is that the goal?

Going public

[sjbe]

There are some good reasons to go public, but sustainable businesses usually wait as long as possible before doing so. There is an obsession with taking a company public early on these days. A few companies have been successful with that strategy but most of the biggest ones were successful concerns long before they sold stock on the public markets.

Selling shares of the company can be a great way to raise cash, but it also introduces a whole different set of constraints on management style. Public companies have to be much more concerned about short term finanical numbers instead of the big picture. The management has to please investors which often forces them into actions that aren't always the most prudent in order to keep the balance sheet in order. This can be a huge distraction for a young company.

Now I'm not saying Mandrake going public is necessarily a bad thing, but I do wonder if it is being done for the good of the company or if it is being done simply to make money for some venture capitalists.

Stocks as currency for wagering on Feature Sets?

[lightware]

Well that would be pretty damn cool, and I would participate, but only under one condition:

Shares could be used as currency to motivate the company to support special features.

How 'bout a special site where stockholders can converge and agree upon features they'd like to see in the distro? They could then pool together in the agreed upon feature set category and wager support by allocating x shares to features they want to see.

14 shares added for journaling file system support
5 shares added for extended wireless networking features
etc

While you may only wager so many shares on a specific feature you'd like to see, if there were enough people that wanted to see that feature supported as well, it could add up.

Not only that, but one could get a visual idea of the support of the distro, and a representation of paying sponsors.