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VA Linux Systems Sends "The Letter"
synaptic was the first of several to note that "The Letter" offering Linux developers in on the VA Linux Systems IPO. Its a hefty 600k PDF file containing a prospectus, and a form to return to show interest. No word on how many people are getting the letter, but the rumors are that there will be quite a few.
Are Canadians shut out? I got "the letter" but it seems that, being a Canadian citizen, I'll be ineligible. That sucks. :) Please tell me I've missed something obvious...
On the possibly-hopeful side, I'll have a working visa (H-1b or something like that?) by early January, and I'll be in San Francisco at my new job. Does this mean anything? I'd love to get in on this, but I'm afraid I may not be able to. *sigh*
In any field, find the strangest thing and then explore it. -John Archibald Wheeler
No, it is not US-only. It looks like they have gone to quite a bit of trouble to make sure it is open to as many international developers as possible. At least from my quick read of the offer.
-Rasmus
by offering the shares from an underwriter outside the US (a German investment banc), so the lame securities laws that 'protect' us from risking money dont apply.
OpenIPO: How It Works
OpenIPO is a new way to take companies public that opens up access to IPOs. Based on a Dutch auction system designed by Nobel Prize-winning economist William Vickrey, OpenIPO uses a mathematical model that treats a bid from an individual the same as a bid from a large institution. This means OpenIPO offering prices are set by the market. The result is a price that reflects what people are truly willing to pay for the stock and the likely allocation of shares to long-term investors rather than speculators.
As in a typical auction, the highest bidders win. But there are two important differences. In the OpenIPO auction, bidding is completely secret, and winning bidders all pay the same price-the amount of the lowest bid at which the deal can be completed. Access the sample auction which illustrates how it works.
When it's done once (RedHat), it's OK. The second time is already a trend, and this trend is something I don't like. Because Linux is not about the money, and these people change that. There is someone sitting there, saying "OK, this guy did this and this, he gets 300 shares. That guy did that and that, he gets 100 shares."
All animals are equal, but some are more equal than the others?
Also, now you will be getting people enhancing Linux not because it's cool, but because it's generously rewarded by every IPO-going company. Many open source projects will get abandoned. Resentment will grow...
Road to hell is paved with good intentions!
The word "woman" is no longer politically correct.
The word "woman" is no longer politically correct.
You should use "Female-American" instead.
http://biz.yahoo.com/ipo/p/lnux.html
VA is doing their best to let non-Americans in on the offer, and you don't have to meet some arbitrary standard of financial status to get in on the deal. I just wish they had given a URL to the pdf instead of dropping it in everyone's inbox.
Chris (VA)
--
Grant Chair, Linux Int.
VP, SVLUG
Co-Editor, Open Sources
Open Source Program Manager, Google, Inc.
Yeah, I agree with you, it's definitely a flaw in the system that allows people with connections to make money. But hey, what else is new? :)
I don't know how much money VA "needs", but with the amount they charge for their systems, they'll probably make it. I'll just be happy if they contribute back to the community, that's worth paying extra for...
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pb Reply or e-mail rather than vaguely moderate.
pb Reply or e-mail; don't vaguely moderate.
From one point of view, they're the oldest Linux OEM out there. They have pretty good sales and a decently growning market. On the other hand, they only sell Linux boxes. Because of this, they're missing out on a majority of the desktop and server markets.
Sane target price: $25.
Now, let's be realistic. They have the word "Linux" tied to their business plan, and every daytrader out there knows that Linux == Gold. I mean, look at RHAT (closed at 143 3/4) and COBT (129 1/2). Money money money money! Get rich quick! Buy now! The market will never go down, ever! Quick! Pass the crack!
Probably Target Price: $165
It's a sick, sick world.
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Every year during my review, I just pray the words "slashdot.org" aren't mentioned.
I'm sure I'm painting a target on myself for saying this, but should free software really spawn billion dollar IPOs?
I just returned from Comdex, where I was suprised to agree with something Scott McNealy said. To paraphrase, he said Solaris is open source as long as you don't plan on making any money with it yourself, if you want to make money, then Sun wants a little piece. That seems reasonable, and I agree granting shares to open-source developers is better than giving the shares to the sharks on wall street, but I think we can do better.
Linus Torvalds was ecstatic at Comdex at how much money Red Hat is worth. I can't help but think this will only splinter the Linux distributions. Now the almighty buck will be in the back of many developers minds when they "contribute" to the Linux community.
I can see the Linux developer cliques starting now...
-DS
"Any sufficiently advanced technology is indistiguishable from magic." - Arthur C. Clarke
No need for a letter.
Yes, that's what my understanding was. The question then becomes: what does "The Letter" really gets you?
The only thing I can think of is that there might be an upper limit on the total number of participants, and the invitees get the first dibs. Nothing to do with the eventual share price, but the total number of participants might be limited.
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Good reasons to buy VA Linux:
- VA Linux are an established brand name in selling Linux-ready machines, in their own words "The Leader in Linux Servers and Workstations".
- They are effectively number one in selling a niche product.
- They have excellent products (They won Best New Hardware in the Linux Journal Editor's Choice Awards).
Compare this with the LinuxOne IPO:- Vapourware product. Only a beta available.
- Not original - based on RedHat 6.0 for Intel
- The functionality of their product LinuxLite which runs Linux off a Windows hard drive, is already within most Linux distributions just by using UMSDOS.
I know which one I'll be backing!J.
Well, CORL has nearly doubled in the last couple of months. Problem is, without an IPO, they're not as visible. Also, when people see Corel, they think WordPerfect or Corel Draw. When people see Cobalt, they wonder who it is, then go and look it up and see the magic word "Linux"
There are a finite number of shares offered. Companies are allowed to reserve shares for their employees and selected others. The rest of the shares go to "everybody else", which generally means large institutions. The Letter gets you the oppportunity to buy from a pool of stock which most people don't have access to. You're not guaranteed to get in (AFAIK), but your chances are significantly better.
Just released a Linux distro that everyone seems to agree is the easiest ever to install and use. Will be using that distro to try and create a market for their Office Suite (which they will actually sell for, ya know, money). So, not only do they have a pretty keen distribution, a currently profitable business and a stock of desktop apps with recognizable names like "QuatroPro" and "Word Perfect", but they also have a plan for making actual money with their Linux distro. Now, to be fair, their CEO is also facing insider trading charges and they've had serious debt problems in the past. Until this year, they were not routinely profitable. We can assume that investor confidence is still somewhat rightly on the low side.
Sane Target Price: $22, up to $30 or $35 as confidence is re-earned and sales rise.
Now, let's be realistic. Their Linux has only been out a few days, and they've already risen something like 50%. But, it doesn't say "Linux" in their business plan and they aren't losing money! Worst yet, a couple of Wall St. firms said a year ago that they're between a "Sell" and a "Hold"! And, oh no! They're not a dubious IPO! Stay away from that sucker! And pass the crack! Quick!
Probable Target Price: $14
Seriously, though, Corel's not a bad long term buy (you Wall St. newbies understand "Long Term", right? It means you don't treat Wall St. like it was a roulette wheel). It seems to me that they've gotten past their debt problems and that Cowpland will probably beat the insider trading charges.
Most importantly, however, is that Corel isn't (yet) an insanely over-valued tech stock. You must know that this sort of thing can't go on forever -- companies that have never made money and who are facing at best razor-thin profits are not safe long-term buys.
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Every year during my review, I just pray the words "slashdot.org" aren't mentioned.
Is VA Systems going to do the same thing as Redhat and only offer those IPO shares via E-Trade or something similiar.
Nonetheless, the problems with the Redhat IPO have already been addressed.
-d9
- ...Contributor lists from major Linux or related open source projects. These projects included Debian, KDE, GNOME, GTK+, Python the GIMP and many others.
- ...VA has a number of Linux Community members in it's ranks, they were asked for their input.
The lucky recipients have a chance at buying exactly 100 shares at the IPO price, without the hassle that E*Trade insisted on -- no background checks or investment savviness questionaires, just fill out the enclosed form. If you get in, send them a check later....The NASDAQ symbol is LNUX. :-)
If all you did was buy $1000 worth of VALinux stock at their IPO price you would have about $7000 when it peaked on its first day. Think of the software you could write with that money. Take three months off and code Linux software. Compare to getting pages and pages of certification and credentials together, trying to find a job with only a 1% chance of success, and writing Visual Basic scripts for 3 months instead. Of course, I didn't get the letter.
Obviously you are not understanding how an IPO works. Or maybe you are choosing to not understand.
Anyway, the Company decides they want to raise some capitol. They decide how much of their company they want to sell off, or they decide how much capitol they want. They have some Underwriters come in who audit the business. These Underwriters say, "Hey, I like what you've got going here. Here's what our experts think your company is worth." The Company says, "Cool, I'll give up 10% of that" The Underwriters say, "Okay, that comes to 4.4 million shares at $22 bones each" The Company says, "Cool, I'm comfortable with that."
See, the Underwriter buys these 4.4 million shares at $22 bones a pop from the Company. They are assuming a risk that each one of those will be at least worth $22. If they opened at $50, and nothing sold, and took it all the way down to $10 before it did sell, they would loose a lot of money.
Take LinuxOne as an example. They are Underwriting themselves. Most likely because they are painfully aware that no self respecting financial institution would Underwrite them. They are hoping to issue some paper on a valueless company, get some suckers, and make off with some cash. Obviously I'm oversimplifying, but they are bogus.
So, Cobalt and Redhat may loose out of maximizing the potential of the %'s they gave up to the Underwriters. But, remember, what they held onto also has sky rocketed some 600%. That is why they are potentially worth billions.
Someone moderate that post 'Funny'. Sir, your suggestion that E*TRADE is going to underwrite this IPO is the funniest thing I've read in a long time. I can assure you that VA Linux was definitely in the loop, and they are acutely aware of the spectacular results of E*TRADE's last venture in underwriting a Linux-related IPO. In fact, I have a link somewhere to a CNET interview, which happened shortly after RHAT started trading, of VA Research tactfully promising to "avoid" the same mistakes.
I'm pretty confident that nobody in the Linux world will want to have to do ANYTHING with E*TRADE, for a long, long time.
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Personally I think the BSD-type licenses are more free than, say, the GPL. Gives more people more options on what to do with the code - which pretty much lives up to the whole idea of other people not having to duplicate the work that others have already done. the code that is currently out there will always be free. any free software programmer can change the license to his code if he wants to - that's what the copyright is there for anyways. it's his, he can relicense it as many times as he wants to. But the ones that are already out there are always there under the old licenses, too (as they were initially given out). Personally - if VA decided tomorrow that they wanted to do something that I didn't think was in the best interests of enlightenment - it really doesn't matter. They have 0 right to any of the code in there. Especially since that is covered under "prior works." I would do some homework before spouting off about these things - you could have at least checked with raster or myself first :)
--
Geoff Harrison (http://mandrake.net)
Senior Software Engineer - VA Linux Labs (http://www.valinux.com)
Geoff "Mandrake" Harrison
Some Random UI Hacker
I'm seeing a lot of messages in this thread whining about who did and did not get "the letter". Most troubling are the messages from people who are complaining about how much they have done for the community, but still haven't got one of "the letters". Lets get realistic here folks. VA, RedHat etc all don't "owe" you one of "the letters". They don't owe you anything. These letters are a *gift* to the community.
No one has a "right" to a gift. No one is "owed" a gift. If you get a gift, be grateful. If you don't, be grateful for all the things you do have.
Neither RedHat, nor VA should ever have to explain *why* they chose the people they did to get the letter. They've done the best the could to identify they people they wanted, for whatever reason, to give thanks to. Obviously this effort cannot be perfect. Some people will be left out. Deal with it.
And stop acting like a damn spoiled child!!!
Interesting. Thanks for sharing this. Too bad that I didn't get it, but you really can't blame them. Our community is growing so large that it's hard to keep track of even the smallest percentage of it :-)
If I understand this letter correctly, you have to be either from the US, Taiwan, Germany, Czech Republic or Spain to take part of this offering. Additionally, you can be from Japan, Finland, Norway, UK, Italy and Poland, but the number of people they will allow from those countries are limited and served on a first-come-first-served basis.
But I'm skeptical. How do I know if it's authentic? Yes, I've helped develop a number of open source applications, but I never thought that I'd stand a chance of making "the cut".
Is there someone I can contact at VA Linux? Or can I somehow look myself up in a list online? Has anyone else attempted to verify their letter?
I'm a leaf on the wind. Watch how I soar.
I think this is bad. These IPO's are going to really hurt the Linux community and drive developers away from the platform.
Sure, its because of jealousy and greed, but I'll be honest and admit to it. I'm still pissed off I got boned on the RedHat thing, while in total friends and aquantences I know (and largely pushed to get involved with Linux) are collectively sitting on over a million dollars in Linux stock. The numerous bug reports sent to RedHat meant nothing. The fact that one of their primary distributers would have never heard of them if I hadn't been pushing it as something worth selling meant nothing.
Its changed now. When I want to GPL and contribute code to the community (or patches, bugfixes, features, etc...) I can't help but think twice now. I never once had a problem with someone taking something I wrote and packaging it and selling it for greater convenience and ease of use for end users. But making billions of dollars in virtual cash because of inflated stock prices where my hard work is involved, and I am unable to experience those gains myself? That's something totally different. That just sucks.
Half the time it's the writer who doesn't put in the thought, half the time it's the reader. I've also noted by your karma (-2) that you don't seem to have much in the way of writing ability either, making your entire contribution to the community largely negligible, and thus making you a hyppocrit. Not to attack you on a personal level, but you've offered no practical arguments to defunk.
The market tends to look at the future... if Red Hat is the dominant Linux distro 8 years from now, and Linux is the dominant OS, then Red Hat might be rakin' in lots of money. So investors are willing to pay $$$ to get in on it now.
-- Erich
Slashdot reader since 1997
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The prospectus says that ESR has options for about $120k shares, which he can purchase for less than 5 cents each. You do the math... ;-)
Of course, his wife may have to give him the cash to MAKE.MONEY.FAST, but that's a side issue.
(Incidentally, I got "the letter" and then "the headers of the letter," the latter addressed to my debian.org addy... anyone else get hit the same way?)
My Blog. Sela Ward can sell me long distanc
Where are all those debian bigots badmouthing about RedHat's supposedly spamming them?
;-)
Those "debian bigots" (nice example of literacy there, bub) were rather mixed on the whole issue. Several well-known anti-spam people refused to even consider participation, because of the unsolicited spam.
My personal take was that (a) the only complete copy of the IPO thingy came to my non-debian.org address (I think because I've submitted patches to Python and/or am part of the Python Software Activity), (b) I could really use the money, and (c) frankly, I don't mind spam all that much. I delete most of it, and sometimes it's vaguely entertaining. Most of my spam goes to my yahoo.com address for some odd reason. Oh, and I was a little miffed after being left out of the Red Hat IPO, so was really just relieved that VA hadn't forgotten about lonely old me!
(Personally, I don't have anything against RHAT; in some respects, like their use of Python [which a lot of Debianites have a twist in their panties about... witness pissiness I get about reportbug on occasion], I think they've put together a great product. More power to 'em.)
My Blog. Sela Ward can sell me long distanc
Yeah, we missed 1 or 2 bug lists /lug lists. It was bound to happen. When it happens, we've foudn that many of the people qualified anyhow, hence the phone call. I'm in florida for thanksgiving, but I'm goign to give a further once over on these on monday.
Chris DiBona
VA Linux Systems.
--
Grant Chair, Linux Int.
VP, SVLUG
Co-Editor, Open Sources
Open Source Program Manager, Google, Inc.
Lots of people are going to need to decide whether they are going to pony up a minumum of $1,100.00 to buy shares in VA. Be sure to follow their instructions and READ THE PROSPECTUS before you agree to buy the shares.
And to protect myself from the lawyers, I need to tell you that I am not offering financial or legal advice. I'm just some schmuck who has thoughts to share. All are offered as-is with no warranty, etc. etc.
The S-1 Filing for the company is available online. Note that they also have a number of S-1/A filings online.
Here are some thoughts on the company:
Thankfully, VA has a fairly good revenue stream ( 1998: $5,556,000.00 1999: $17,710,000.00 ) however, when one looks at the cost of revenues it also goes up, and in fact goes up disproportionately. ( 1998: $4,494,000.00 1999: $17,766,000.00 ).
This means that while VA had a pretty good gross margin in 1998, they actually went negative for 1999. Not a good trend.
The "gross margin" they mean here is how much they earned or lost by producing their product. A company can never be profitable until the gross margin is positive. When the gross margin is negative, the company is losing money on each unit sold. When the gross margin is positive and the company sells enough units they will make a profit, what being in business is ultimately about.
One has to wonder what happened that the gross margin went from $1,062,000.00 in 1998 to -$56,000 in 1999. Why did the cost of revenues go up so much?
Deutsche Banc Alex requires you to send funds within three days of the IPO to cover your positions. Additionally, they take 10 days to wait for your check to clear. You may not transfer the shares to any other broker until your check has cleared. Note that they do not appear to offer online trading, and only have a single non-800 number listed to trade shares. They will only accept market orders (e.g. sell at any price) for the first day. All this for the low, low commission of $53.
The prospectus says it best:
We have a history of losses and expect to continue to incur net losses for the foreseeable future.
We incurred losses of $14.5 million in fiscal 1999 primarily due to expansion of our operations, and we had an accumulated deficit of $29.9 million as of October 29, 1999. We expect to continue to incur significant product development, sales and marketing and administrative expenses, particularly as a result of expanding our direct sales force. In addition, we are investing considerable resources in our professional services organization and our Internet operations. We do not expect to generate sufficient revenues to achieve profitability and, therefore, we expect to continue to incur net losses for at least the foreseeable future. If we do achieve profitability, we may not be able to sustain it.
No plans to make money into the forseeable future? Ouch. Now you know one reason why IPOs are considered risky. If their cost of revenues (which does not include administrative, sales, marketing, etc. costs as far as I know) does not come down, they'll be unable to make money even if they "generate sufficient revenues".
We rely on Synnex as our single source contract manufacturer. If Synnex is unable to meet our manufacturing needs or our relationship terminates, we may lose revenues and damage our customer relationships.
So VA's server business (which in an earlier risk was mentioned to be 59% of their fiscal 1998 revenues and 88% of their revenues in the quarter ending October 29 1999) is completely tied to Synnex. Who's Synnex? Are they a stable company? Any risks associated with Synnex would naturally be inherited by VA due to this single-supplier arrangement.
If the Linux developer community fails to support us or reacts negatively to our business strategy, our business will be harmed.
The third parties in the Linux developer community, upon whom we rely to develop and maintain a majority of our software, may not continue to support us, our product promotions or our corporate or operating decisions. If we lose the support of these third parties, we would be forced to rely to a significantly greater extent on our own development efforts, which would require us to hire additional developers and increase our development expenses and could adversely impact product release schedules. In addition, negative reactions of third parties in the Linux developer community could harm our reputation, diminish our brand and result in lower net revenues.
Hmmm... they must read Slashdot as well. ;-> I personally don't think this is a significant risk, but yes, it's there.
And speaking of irritating the developers, how about this little tidbit:
We may not be able to use intellectual property to protect ourselves from competition.
Our systems consist primarily of commodity hardware components in combination with the Linux operating system. While we have developed some proprietary techniques and expertise, most of our activities and systems are not protectable as proprietary intellectual property and may be used by competitors, harming our market share and product revenues. To protect our intellectual property, we generally enter into confidentiality or license agreements with our employees, consultants and corporate partners. We have also recently commenced a patent program and to date have filed one patent application. In general, however, we have taken only limited steps to protect our intellectual property. Accordingly, we may be unable to use intellectual property to prevent other companies from competing with us. In addition, we may be unable to prevent third parties from developing techniques that are similar or superior to our technology, or from designing around our copyrights, patents and trade secrets.
This is to be expected from any Open Source company. Hopefully the GPL will be deemed enforceable in a court of law which will limit the ability of competitors to compete unless they too assume this risk.
And yes, the doubts on enforceability of the General Public Licence were also listed as a risk.
You will experience immediate and substantial dilution in the book value of your shares.
The initial public offering price is substantially higher than the book value per share of our outstanding common stock immediately after the offering. Accordingly, if you purchase common stock in the offering, youwill incur immediate dilution of approximately $10.41, assuming an initial public offering price of $12.00 per share, in the book value per share of our common stock from the price you pay for our common stock. For additional information on dilution of the book value of your shares, see "Dilution."
It's pretty common to have significant dilution as part of an IPO, but the magnitude of this dilution is enough to give one pause. Keep in mind that you'd be paying $11-13 for something only worth approximately $1.59.
Of course, if you're just in the mood to gamble, this is as good as any. However, this could be a great opportunity to take a look at a company's financials and really try to decode them. You'll find that it's not that much harder than picking through some ugly perl script once you know how to do it, and it can be much more profitable... ;->
Any other thoughts on the soundness of this company?