What is an open-source company worth? Part II (Valuing growth)

Forward-looking multiples may be the best indication of an open-source company's valuation.

Tech Culture

I heard from a few people about my post on the relative valuations of MySQL, JBoss, Zimbra, and XenSource. Because of a lack of data on growth trajectories, I didn't factor those into my light analysis, but anyone buying a company would seriously factor this in. In fact, as one person commented, "multiples are a factor of growth by definition of discounted cash flow based valuations."

He's absolutely right. Part of the reason that MySQL got such a great valuation is that it has significantly improved its growth in the past year. Much of this came from productizing its services (i.e., the distinction between MySQL Enterprise and Community), such that it had a compelling value proposition beyond vanilla support. Savio would be proud. :-)

JBoss was growing in excess of 100%/year. MySQL wasn't far off from 100% growth. As for the crazy multiple on XenSource, the bankers clearly used a forward-looking multiple, not the understated trailing revenue. Citrix must have had a lot of faith in those forward numbers, but had they not, why buy XenSource? Using forward-looking multiples, suddenly XenSource's valuation may not be quite as crazy.

At this point, most open-source companies need to be thinking about growth. There's a huge land grab going on. She who can grow bookings fastest, while managing expenses so that profitability is not a distant dot-com bubblesque dream, will win, either as IPO or as a hefty acquisition.

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