SM: What should I have aksed you that I didn’t? Where do you go from here?
RJ: We spend the next couple of years getting up to the level of revenue, assuming we perform to our projections, that will allow us to go public. Hopefully the IPO market will be back.
SM: Why do you care about going public?
RJ: I think OpenSource is a business where critical mass matters. We have already made two reasonably small acquisitions, but I do believe that eventually having access to liquidity of public markets could help us spread wider beyond the Enterprise Java space.
SM: My advice to you is to consider not going public and do it in the private market as long as you can. It is an absolute pain in the ass to be a public company. Really great companies are trading at valuations which are totally ridiculous right now. What do you do in that situation if you are in the public market?
RJ: I agree. There are dunges to corporate governance in the public market. Many public companies are not run by the executives, they are ran by the analysts.
SM: Exactly. You have to make all kinds of compromises to stay on the quarterly clock, which is not meaningful. Sometimes you have to make decisions which are for the long-term good of the company which compromise the near term. If you are in the public market you do not have that luxury.
RJ: It is rare to see public companies who have done it their own way. Oracle is a good example of that. Many analysts hated their acquisition strategy, but Oracle stuck with it. They have done very well with it.
SM: I think acquisition is the right strategy for what you are trying to do, but you can do it via the private market. If you continue to execute and get to a certain valuation level, you will be able to raise a lot of cash. The private equity market is still flushed with cash. Kayak just acquired their biggest competitor using this strategy. If you can delay going public until you have a revenue threshold that is significantly larger, you will be less vulnerable. It is very expensive to be public.
RJ: Private roll-ups are not that common. I am convinced that in our space it makes a lot of sense.
SM: I am convinced that they need to be looked at in much more comprehensive scale by many companies as their strategy. There is a lot of investment in a lot of little things which are neither here nor there. How will they exit? There are a lot of private companies that need exits, and that is a very interesting way to structure larger companies.
RJ: This is a very interesting time for that. In the last six weeks we have been approached by two companies in our space who are hoping that we buy them. Neither makes sense. One was a financial black hole, and the other was interesting technology but non-core for us. I feel very bullish about the future, but I am not going to take on something I do not fully understand.
I firmly believe we will see companies that have interesting IP that are going to have to look for some exit. There is a lot of interest in companies that have only raised seed money or are running out of whatever money they had. If they do not have a solid business model then nothing else is going to happen for them right now.
SM: Frugal execution always pays off. This has been great, congratulations.