Feb 13 2012

Tech companies, the buyout

When you participate in the creation of a tech company, particularly on the product side, there are plenty of reasons why your work might get lost. The company might fail, the product might not work and the company may survive with other products, a particular part of the product might be dropped. These are actually pretty good reasons why your work might go down the drain.

Now the good thing with open source is that it can never go fully and completely down the drain. Even if your company is closed down, the code is still released as Open Source and available. You can decide to reuse it.

This is not the case with non open source code and there is an even worst reason for your code to go down the drain: when it disappears after the buyout of your company.

I know what I'm talking about here, because I lived it. This lead me to feel very cautious of buyouts or even mergers and made me even more confortable to make the code Open Source.

Now the story. I was one of the first employees at NetValue, a tech company that pioneered Internet Usage Statistics in France and Europe. The company was "apparently" successful, as it managed to have a decent client portfolio and the technology was working quite well. In the 2000 bubble the company manage to do an IPO at 22 Euros a share on the French Secondary Market. The company was valued in the multi-hundred million euros range and I was a "virtual" multi-millionnaire when the stock hit 100 Euros a share. Unfortunately the company was never even close to break-even and had low revenue streams. Once the bubble exploded, the initial client base of tech companies collapsed, and at the same time the competition became much more active in Europe and revenue could not really grow enough to cover important panel recruitment costs. We fought like hell, built some additional technology by creating a "MegaPanel". This was not enough to grow the revenue, but it increased Nielsen//NetRatings' (now part of Nielsen) interest in acquiring our company. Needless to say that I was not close to being a millionaire anymore, as the company was acquired for 2 Euros a share. The good news was that I still made a little money in addition to my startup salaries which where very decent. This cannot be said of anybody that had bought stock over 22 Euros at or after the IPO and had to let it go at 2 Euros a share. Some got lucky though and could sell at 100 Euros a share (I could not as we had a lock-out on our stocks).

This taught me a lot about the "virtual" value of things, although I fortunately never saw myself, nor behaved like the millionaire I never was. This makes me see the potential "rip-offs" when looking at IPOs like to ones of Groupon or even Jive Software. The first might have a "great" business model of legally spamming people with coupons and the second may have great technology, but the reality is that they seem to be undertaking an IPO while still being far from break-even. I saw it happen, I saw the results. This is not risk taking, this is speculation. Some people might get badly hurt. Others will run with the money. If you play with it, make sure you are on the right side.

It's not the part where I didn't become a millionaire that disappointed me when the company failed (I'm actually better off this way as I wouldn't have felt it was right), but what happened with our technology. I spent one year at the company that acquired us and my main concern was to show that our engineers deserved their job and that the technology we built was useful to the new entity. We spent multiple weeks in Silicon Valley. We had numerous meetings across the board to work on the new combined project, participating to architecture decisions where technological choices were made. I was in the front line defending the team and the technology. It was not easy as we were the newcomers. One lead engineer even said during a meeting "WE acquired YOU" as an argument about the technological choices we had to make.

We had some great technology which we had been able to build with much less money than the "acquiring" company. But technology integration is complex. In such cases, the decisions are all but technology wise. It's internal politics. Nielsen//NetRatings ended up using a lot of the technology we built, though they made us change a lot of things. The Nielsen MegaPanel (r) ( still exists in Nielsen's portfolio and, unless it's been completely rewritten since then, should have some NetMeter and loading code from our little group of engineers (Hi Nicolas, Laurent(s), Erwan and others). Unfortunately there is one piece of technology that was really great and that was completely dropped. We could not defend everything we had. This was the case of the online tool we had built, "NetValue Online". It was particularly heartbreaking to let this project go, because I was the one who had coded the prototype to show that it could be done. I learned a lot while writing pieces for that tool and XWiki has benefited from this, so it wasn't a complete loss. At NetValue we had discussed multiple times that the "Framework" (our query builder module that was dynamically allowing to create reports online) would have been a great open source project, but we never actually managed to release it as open source. 

The lesson I learned is that when you code for business you need to be careful not to get too attached to the product and to the code you do, unless... you are working on Open Source code. This doesn't mean nothing will be dropped, but at least you or somebody else will get a chance to change the course of things. 

What is important to understand is that depending on the decisions you have made for your company or, if you are an employee, that your company has made, a buyout might be from not probable to unavoidable. Very often in this process there are a lot of losses in terms of jobs, technology and products and in the best cases there are only changes in the strategy. 

I haven't even talked about the organization issues following buyouts. As a manager, before buyouts, you can't promise anything to any of the people you work with, because you have no idea what the constraints will be in the future. 

Today, as a manager at XWiki, I want to be able to stand by what I'm saying to my employees. I want them to have a say in the company they work with as well. This is impossible unless you guarantee who will control the company in the future. I doubt that an entrepreneur who has in his plans to sell the company to a higher bidder can stand behind his management positions.

Ludovic Dubost
Creator of XWiki Open Source Software and Open Source company XWiki SAS