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A promising open-source company bites the dust

Ringside got stood up at the altar, and that should serve as a cautionary tale for anyone eager to sell out too easily in a recessionary economy.

Ringside Networks was a very cool company - one of the best new open-source companies, as I wrote earlier this year. The company had a dream similar to Ning's - to make social networking-type applications an integral part of a wide array of websites and enterprises.

This past month, however, even as Ning neared 500,000 social networks (at least one of which is not used for porn! Go figure!!), Ringside went down for the count.

Why? How could a company flush with some of the best venture money in the business - Matrix Partners - go under even before it really had a chance to sell into a welcoming market? Bob Bickel, Ringside's co-founder, explains:

We were ready for our Series A round of funding, and in late May we received a number of term sheet offers from the very best VC firms. As we were about to finalize our funding, one of the biggest non-evil Internet companies asked if we would have interest in being acquired instead. After a lot of thought and debate, we decided that the larger company would enable us to get our technology to market sooner and with more impact.

The story sounds almost too good to be true. And it was. After dragging out the process for most of the summer, the non-evil company decided that they really did not want to acquire the company after all. Recommendation: always beware of wolves dressed as Grandma, they may be more like Microsoft than they admit.

"Don't be evil," indeed.

Actually, this is not so much a chance to rip on that-non-evil-company as it is a cautionary tale for all companies, open-source or proprietary, hoping to be acquired in a recessionary market. True, with the IPO market all but closed, an acquisition may be the only viable exit. But before you go sprinting for the exit, remember Ringside.

The less you need an exit, the more likely you will be to get one at an attractive valuation. As such, the first order of any business, not selling the business. So long as you keep in mind that your primary customer is Wal-Mart, AutoZone, Citigroup, etc., and not Oracle, HP, IBM, etc., you should be fine.