Saturday, January 19, 2008

Need some powerful software to run your nonprofit, social enterprise or green startup?

I'm happy to announce an opportunity to apply for a NetSuite product donation. Please spread the word!

NetSuite is launching a pilot program to donate NetSuite software and NetSuite employee volunteer assistance to charities and for-profit firms that generate positive social impact. NetSuite ( is a public company with over 5,4000 customers-- you might have seen NetSuite in the news recently for our Initial Public Offering (IPO).

Our software is a web-based platform for running all aspects of a business from ERP to CRM to ecommerce. It is a modern, flexible ERP/CRM/ecommerce platform so it can be customized and extended to meet a variety of needs.

Things our current customers use it for that might be relevant to potential grantees include:
- Running an ecommerce store.
- Organizational accounting / general ledger.
- Fundraising / donor & donation management.

We have some great grantees up and running like Special Olympics and Goodwill, and some great partners helping us with this initiative including TechSoup, NPower Michigan and the Tech Museum Awards.

We are looking for three types of applicants:
- Registered charities in the US , UK and Canada .
- Social Enterprises, specifically fair trade organizations.
- Green Startups.

Competitive applicants will:
- Have the capacity to implement an ERP/CRM/ecommerce system.
- Be able to articulate and provide at least one metric for their social impact.
- Be a good match for NetSuite functionality.

To learn more, download our guidelines, or apply for a product donation, visit

Monday, January 7, 2008

Acquia Valuation- Wow

Acquia, a Drupal start-up from Dries Buytaert, the founder of Drupal was funded for with a $7M seed round. Actually there might have been a smaller seed round and Acquia has been in stealth for awhile, but that is unclear.

The more interesting thing is to speculate on Acquia's pre-money valuation. Basically (I think) you have Dries, a CEO and a business plan. Maybe you have Dries, a CEO and the core team already committed (seems like the core team has been on board for many months from their posts on the Acquia blog).

So some quick math. Assuming they want to keep the founders stake around 50% for a series A, that means VC equity + option pool (lets say 30%) = 50%. Therefore $7M is should be ~20% of the post-money valuation. Putting post money at $35M.

Sounds super high, so maybe they kept founders + option pool at the 50% level and sold the VCs 49% (lets estimate 50% for the math). Of course this means that in a B-round founder control goes away, though we have no idea about what they've done with preferred stock. But $7M is a bunch of money (15 people for 2 years using a $200K per head per year back of the envelope), so that B round is probably not much of a concern.

So the math is $7M equals 50% post-money putting post-money valuation at $14M.

Whatever the case, two guys, a business plan and maybe a team, were worth something in the neighborhood of $7M-$28M pre-money. If I were betting in Vegas, $7M or perhaps less.

Still, a few guys + a business plan is worth $7M? Where did all that value come from? It might be the revenue model, but I suspect it really comes from the Drupal community.

This is the far more interesting part of the Acquia story. Drupal has "spun off" (insert more precise term here) a number of consulting forms that have been growing wildly. Valuations of the CivicActions, Advomatics, Trellons, Lullabots, etc. of the Drupal community are probably pretty good-- general rule of thumb for a profitable consulting firm should be $150K revenue per employee per year, but consulting firms have a hard time growing beyond $3-5M in annual revenue. These guys are feeding their families well, but they aren't making what I would consider "real money" off Drupal.

I think the VC's bought into the idea that Acquia's product has already been mostly developed. They have bought into the idea that customer acquisition costs are low because the customers are aggregated and accessible in a single community.

Now lets look at exits. Acquia is to Drupal as RedHat is to Linux. RedHat's exit was via IPO at a valuation around $3B at ~$40M annual revenue with annual revenue growth '95-99 running around 100%. Red Hat's product strategy was pretty retail there and now is far more services/ enterprise related. Not sure how much they raised.

Someone believes there can be a multi billion dollar exit on Acquia, and their press release blurb gives a good story:

The Drupal web platform has been downloaded over 2 million times since its inception, and project growth doubles annually. Drupal is used to deliver a wide variety of Web 2.0 application types including single or multi-user blogs, wikis, community networks, digital media portals, and core web content management.
What if a single company could sell all kinds of web 2.0 applications without having to pay for the software development? Anyone what to bet on how many times Ning was brought up with VCs (with their rumored post money of $214M in their recent $44M funding round) ? But that might confuse the VCs, since Ning's an eyeball and advertising dollar play, it appears.

I am really curious how Acquia projects revenue. It is distributions and services, but are the customers existing Drupal community members (i.e. a little more retail)? Is it the enterprise players that come into the community and drive the revenue at the consulting companies? By making Drupal easier, how do they project community growth and what percentage of that community growth do they project capturing?

Do they have a Ning story and a Red Hat story? Whichever plays best with investors?

Bottom line though, is that huge pre-money valuation is driven by the strength of Drupal and, very likely, the inability of Drupal to grow its consumer user base as fast as the Joomal community (i.e. Acquia can capture customers the Drupal community simply is not pursuing and cannot reach).

If I were pitching the VCs I would lead with the Red Hat story, then pose the question, "What if a single company could capture all the revenue you see in the Joomla community?"

I'd invest in that company.

Thursday, January 3, 2008

Lucy asks for an opinion...

Lucy Bernholz is on the board of GiveWell, subject to a recent firestorm (or maybe a small birthday candlestorm), and has asked for some advice. Never one to shrink away from offering free advice,

As I watched this all unfold, I kept thinking that it is so appropriate to the organization-- openness means you get to see both the good and the bad. And more irritatingly for the board and staff, everyone gets to comment on it.

I also kept thinking about how far worse happens, but would never make it to the light of day in traditional organizations.

So how does one decide between the options you present? I suggest a few criteria:

  1. The magnitude of the offense. It is easy to imagine yourself a saint on the net and hold people to your saintly expectations. How bad is the offense?
  2. The quality of the idea. People tend to join start up boards because they believe in the idea behind the organization or the founder or better yet, both. So is the belief in the idea strong enough to wade in there when you no longer have confidence in the person?
  3. Rehabilitation. Some of us believe in locking up the criminals and throwing away the key. Others believe in rehabilitation. Seems like your own beliefs are a pretty big driver. The other angle of this is whether you believe the staff in question can be rehabilitated.
  4. Personal energy. Do you have the energy to clean up the mess?
  5. The rest of the board. No matter what decision you personally make, if you are the only one for rehabilitation or shutting the place down, then there is not much chance of a positive outcome.
That a guy in his mid-twenties got a little rambunctious after seeing his picture in the New York Times and started to believe his the whole "quit a hedge fund" marketing storyline is not a very big deal to me personally. So for me the magnitude of the offense is small. [Edit: This is not a defense of what was done or a suggestion that it is any way acceptable. I am a big believer there needs to be clear consequences for dishonest actions.]

The quality of the idea is extraordinary, IMHO. No one has done openness and transparency well or modeled it for others. You guys are doing a great job. Unfortunately, you are doing such a good job we get to see the bad as well.

I'm a big believer in rehabilitation. The antics really have me believing the whole ex-hedge fund storyline (I have a low opinion of the ethics of most big money players). But I don't know the man, so I'm not sure of the rehab-ability. But from what I've seen from afar, I would rehabilitate and brace myself for the next 1 or 2 of these and then watch some really extraordinary accomplishments roll out. Too often in the nonprofit sector, IMHO, we discount the high driven, high-performance, outcome oriented crowd because their methods and culture are so different ... and with social responsibility so sexy, lets take advantage of the 10 years we have these guys before they look around and see their peers all driving BMWs into the driveways of their 4 bedroom suburban houses and go out an make a couple million before they have to retire (OK, that was a little cynical).

If this was my only board, I would invest the energy. If I was on more than one, I wouldn't have the energy required and would hope other board members stepped up. An alternative might be to recruit a few additional quality people to the board since the idea is good, but the organization clearly can't be a personality driven creature.

So basically, were I on the board, appropriate sanctions and controls would be put in place and an opportunity to reform offered as long as the whole board stepped up and devoted the hours it was going to take, but that is just me.

PS Know that among the vitriol you have folks out here that are about as supportive as it gets. Keep up the good work :)

Wednesday, January 2, 2008

Quotes from the public

This whole GiveWell thing is killing me. But it provides such good blog fodder. So I think I'm going to do a series of quotes out of the morass because people are fascinating.

Come on, people. In business this can be dismissed as sleazy shenanigans, but in charity this should not be dismissed.
This comment literally made me laugh out loud. Charities, especially private foundations, IMHO exhibit some of the most sleazy shenanigans ever conceived by corporations . This specific example so doesn't even rate among executive compensation, employing foundations as conduits of money to friends and business associates, etc. If we want to clean house, lets start with something important and systemic.

But it should make Independent Sector shake in its boots. If this represents the popular opinion of charities, then some really ugly stuff could come out of congress in the name of charity accountability.

Luckily, rich and powerful people use foundations so I suspect the lobbyists at work on this issue are far better than the ones 501-c-3 public charities alone could muster. (OK, I might be a little cynical)

Givewell: Tested by their own values

The Givewell firestorm (actually more of a small birthday candle) continues.

My reaction: Givewell is Naive, Inspired and Arrogant. But that does not detract from what they are trying to accomplish. Transparency is not the same as Saint Hood. I've seen private foundations and major nonprofits do FAR more unethical things than trying to generate publicity under false pretenses.

Heck, I wish all the MetaFilter busy-bodies that keep emailing me and posting comments to this blog would turn their attention to the far more egregious behavior in the sector. But since their attention span isn't long enough to do investigation, they need intermediaries to queue up issues or folks like Holden to do stupid human tricks.

For the record: I already know Holden is pissing people off and exhibits poor social skills... now I can add exhibits poor judgment to the list. But that doesn't take away from the fact GiveWell is doing something valuable.

Which brings me to the point. Givewell is starting to feel the impact of its own principles. The Metafilter candle storm is what happens when you open up your operations to the masses. It will make the Givewell staff make better decisions in the future.

Hopefully the next candle storm can happen in an online community with a bit more civility and a bit more background knowledge... rather than just mindlessly spanking Givewell, the community will leverage Givewell's openness to make it better.

PS Sentiments like this piss me off: "My sincere hope is that GiveWell is irrevocably tarnished by this behavior." Check the Metafilter thread for 100s of examples. Why wouldn't someone think that my sincere hope is that GiveWell is irrevocably transformed by the reaction to this behavior and turns into an organization I'd be willing to support.

PPS I kinda like the soap opera aspect of this whole thing. I sincerely hope that after spanking Holden the board can look at this episode as evidence that the idea behind the organization is solid. Then everyone can go out and have a beer and a laugh.