Oracle Kills Virtual Iron

rhathar writes in with news that Oracle is killing off the products of Virtual Iron, a month after purchasing the company. Reports say that all but 10 to 15 staff were let go. The Reg article speculates that Oracle bought VI for its technology and considers its customers and partners expendable. When the Sun purchase finalizes, Oracle will be in possession of three separate virtualization technologies all based on Xen. "In a letter to Virtual Iron's sales partners, Oracle says it 'will suspend development of existing Virtual Iron products and will suspend delivery of orders to new customers.' One partner said, 'So basically, anyone that built their hosting infrastructure on VI... is now totally in the s–.'"

Re:Yet another IT company gets to live my dream!

[mzito]

Heh. Well, so, that's not exactly how it works. They had raised something around $60-70m in three or four rounds, including one round that involved firing/departures of most of the original founders, a new management team, and a totally new business focus.

So first of all, every time you do a round of fundraising, you create new shares of stock. Let's say my company has 100 shares of stock, and you're a 10% owner of stock - that means you own 10 shares of stock. When we want to raise money, we go convince an investor that our company is worth $100,000, or $1000 per share, making your shares worth $10k. We then have the investor give us $100,000, we create 100 new shares of stock, making the company worth $200k "post-money" - but now you only own 5%, and your investors own 50%. On top of that, the investors might say, "hey, we want liquidation preference, or participating preferred" - complex subjects that can't be delved into here, but suffice it to say that gives them more power.

Ok, time goes by - you spend that $100k you've raised, and while business is not terrible, it's not as good as your investors had hoped. You go back to get more money, and they say, "Sure, we'll give you another $100k, but we really don't think the company has progressed like we'd hoped, so the total company is worth $150k pre-money" - whoops, now your shares are worth $7,500. And after another 133 shares are created, you now own around 3% of the company.

See how fast individual ownership can drop? Now, let's extend this factor to someone like VirtualIron who was raising $10-25m *every time* they raised money, and changed business models once. You can bet that by the time they went through four rounds of funding, the VCs owned almost all of that company. (By the way, I realize that this is only the most simplistic model of how companies fund operations through VCs, so don't yell at me - I don't have the space to talk about every option).

According to some papers that had been leaked to the nytimes, in 2008 they did $3.4m in revenue and lost something like $17m on that $3.4m. How much can that company be worth? Typical rule of thumb in tech stock transactions is 5x-12x revenue, depending on a variety of factors. Given that it cost them $17m to make $3.4m - one could see how the multiplier is not gonna be so favorable. Let's make it 6x - that's $20m.

So, you have a company where investors have sunk and lost $60m, fired management at least once, changed business models once, changed products at least once, and in the end, they're getting bought for between $16-32m. Do you think that anyone got more than a "thanks for selling this dog of a company" bonus?

It's a shame, and I feel bad for the employees, but this is not a tech success story.

Re:Yet another IT company gets to live my dream!

[tftp]

Here's your millions of dollars, we'll keep the hundreds of millions you could've made in the next years if you weren't so damn short-sighted.

The seller knows about this. You don't get to sell a company for $Nm by being stupid. However there are many reasons why people sell stuff and why other people buy stuff. For example:

• The owners want to retire.
• The owners burned out.
• The owners need money, now.
• The company has problems and unless sold it will close its doors soon
• The owners foresee difficulties ahead (financial crisis, for example)
• The owners know that they reached the end of their road, technologically speaking
• The owners know that they are no good as marketeers and will never be able to increase revenue
• The owners know that without a big cash infusion they can't develop new product, and they can't get that financing on any reasonable terms
• The owners know that once smoke clears their company won't be worth as much (or anything)

Re:So..

[assert(0)]

The new google? Anachronicity alert!

Oracle:

Type Public (NASDAQ: ORCL)
Founded California, USA (1977)

Google:

Type Public (NASDAQ: GOOG)
Founded Menlo Park, California (September 4, 1998)

Re:Yet another IT company gets to live my dream!

[Anonymous Coward]

Here are my work-a-rounds for Slashdot in the order I use them.

1. Use Firefox and install Greasemonkey and Greasefire addons. 2. With the addons installed, go to slashdot and right click the little Greasefire monkey head in your taskbar. 3. In the right click menu, you'll see some shit that says something like "48 scripts available." Click that. 4. On the thing that pops up, install "Slashdot - Remove Title Prefix", Slashdot - Expandable Comment Tree", "Only Slashdot News/Comments", "Slashdot Facelift", and "Slashdot - Single Page View" 5. After you do that, making sure you are using the old comment mode, go to the story you want to read and just click the "Change" button for the comment threshold, even if you are happy the current threshold. Any story you read from now on, just get into the habit of clicking that Change button and all should be well. 7. ??? 8. I guess PROFIT!! or something.

Re:Yet another IT company gets to live my dream!

[cshay]

My workaround was to direct Adblock to simply block the grey bars. As an intelligent Slashdotter, you DO use adblock, don't you?