Sunday, September 2, 2012

JBoss Recollections Part 4 - VC Funding

While this may be a more interesting part than the others because it involves money and behind the scenes stuff, you still may want to take a look at Part 1, Part 2, and Part 3.  As usual, these are just my recollections and others may chime in to clarify or disagree...

This section is about the decision to raise money and how the process went.  One of the interesting things is that our growth (these are booking shown on the right) was actually faster than what we pitched to the VC's in the fall of 2003.  I wonder how often that happens...

Sept, 2003 Press Tour
In September, 2003 Marc and I did a Press tour.  The slides are below.  It is interesting to note how far things had come over the previous year and how JBoss had executed on a number of the topics discussed in Part 2.


During that press tour Marc and I got to spend a lot of time talking.  In addition, the press tour was going very well.  People were loving the story ("I did not start this in a garage, I started in my In-Laws garage") and the potential impact we would have on the market.  We were just experimenting with the Professional Open Source strategy and positioning.  So our egos were getting stoked.

During the tour Marc finally opened up to the idea of at least talking with VC's, as it would help get us more recognized in the market.

Talking with VC's
We were lucky because it was easy for us to talk with VC's.  Many had already been knocking on our door because we were starting to get a fair amount of press and a lot of their own companies were using JBoss themselves.

In early October, 2003 Nick Beim of Matrix gave me a call to do a blind reference check on an old Bluestone friend one of his other companies was looking at hiring (Matrix LOVES to do blind reference checks on key people).  He then asked me what was going on and I told him about JBoss and how we were just starting to talk with VC's.  He said we had to talk with David Skok, a fairly new VC with the firm, who had been a 5 time serial entrepreneur and co-founder of Silverstream.  David and Nick came down to Atlanta the next week and we had lunch at an outdoor table at a restaurant in Buckhead.  I really liked David immediately.  He seemed to have a more founder-first philosophy, and would be patient.

Over the next couple of months we met with a number of VC's.  Below is the pitch Marc used when presenting to Matrix in November, 2003.  The partners LOVED him.  Marc truly sparkled when doing these pitches - smart, energetic, surprisingly humble, yet totally confident and driven.

By late November, the race was on.  A number of VC's were starting to give us term sheets.  Initial term sheets were about $12-15 M pre-money with an investment size of about $4-5M.

It was fun and tiring at the same time.  Marc did become convinced we should take investment money, but keep to a cash flow neutral position for running the company.  We were talking with way too many VC's by this time, and we decided that we needed to figure out who could help us the most.  We got our short list down to David Skok at Matrix and Peter Fenton at Accel.

Making a Decision
Marc and I both liked the experience of David.  However, Peter was being more aggressive with his term sheet offers.  More importantly, Marc was concerned about the old guys (David and Bob) not being culturally in tune with him.  Here's how the final couple of days worked out:

Peter had given us a term sheet for $10M investment with a $32M Pre-Money.  David had given us a ~$25M Pre-Money offer.  We told David we liked him the best, but wanted to leave room in the round for Peter.  A compromise was struck where we took $8M from Matrix and $2M from Accel at a $30M pre-money valuation.  David would be on the board and Peter would be a Board Observer and would be positioned to lead a second round if we needed it.

Funny Things
There were several funny and strange things that happened during this process and afterwards.

  • There was a VC who I won't embarrass who we were not calling back during this process.  They actually faxed us a term sheet without even talking with us.  We did let them know they were not in the running after that.
  • We had talked with Intel during the process.  In the end we decided there was not enough room in the round and not to take money from a "strategic".  The guy from Intel called Marc and left a scathing, profanity-infused threatening voice mail.  Marc saved it for a while - it was pretty funny.  We succumbed to the threat and let them invest $250K, although we probably spent that much in lawyer fees dealing with them.
  • While meeting with the Benchmark team, they introduced us to Marten Mickos of MySQL.  We had some very short and high level discussions of merging with them.  But it was obvious both companies wanted to go it alone, which is probably for the best. 
  • I occasionally will hear a VC talk about how they chose not to participate investing in JBoss.  It always makes me smile.
  • Peter did a very good job of PR when JBoss was sold, and David did not.  I love Peter, and think he is an awesome investor - I got to see personally how incredibly important he was to Hyperic and Spring for example.  However, just to set the record straight, it was David who helped Joe McGonnell develop the JBoss Marketing Machine, and it was David who was at every board meeting and calmly guiding and supporting the company and Marc thruout the process.

In the end, JBoss was acquired for $350M by Red Hat in early 2006.  There was only a small debt round done in 2005, so Matrix and Accel both had a close to 10X return on their money in less than 2 1/2 years.  It is always difficult to say who deserves what when companies are successful, but I will say that having the VC investment did accelerate the growth  and maturity of the company.

2 comments:

Bob Bickel said...

Here is a JBoss presentation from 2001 - http://www.slideshare.net/adorepump/jboss-group-presentation

Bob Bickel said...

And a RED hat era presentation -http://www.slideshare.net/dandreadis/jbossorgjbosscom