We recently reported Oracle had acquired Virtual Iron, but now The NY Times has obtained financial documents that show Virtual Iron lost a heck of a lot of money in 2008:
“The documents indicate that Virtual Iron had just $3.4 million in revenue last year. That’s a big rise over $1.5 million in 2007. But Virtual Iron sure spent a lot of money to get that revenue.
Its sales, marketing, research, development and administrative costs were $17.7 million last year, up from $13.6 million in 2007. So, in 2008, Virtual Iron posted a loss of $15.3 million.
Last January, Virtual Iron raised $20 million, hiking its total funding up to $65 million. Highland Capital Partners, Matrix Partners, Goldman Sachs, Intel Capital and SAP Ventures all funded the company.
Oracle has declined to reveal how much it paid for Virtual Iron, but with the revenue in 2008 sitting so low, it seems pretty clear that the investors lost out on this start-up — that is, unless Oracle was willing to pay many, many times Virtual Iron’s revenue. (The company did report $17 million in cash and equivalents in 2008.)”
Ouch. Hard to get excited over this particular case of M&A, even in these troubled times.
Why is the author places this acquisition in such a negative light.
No one buys startups based on their current loses. They get bought based on revenue growth and then multiple of that revenue. Typically regular software companies have been bought at 10x revenue, but in virtualization industry the comps have been all over the map sometimes 30x, and in other cases 100x to 500x of revenue. Given that Virtual Iron was growing revenue at 130% a year, at this rate they will break even in 2010 – so I guess Oracle did not buy a big loss!
The other thing the author should have compared this to comparable acquisitions in virtualization space. The XenSource acquisition in 2007 for $500M by Citrix. At that time XenSource had yearly revenue of less than $1M with more than $20M a year loss. That means that Citrix paid 500 times the revenue. Somehow the the author did not write that in a negative light of how Citrix acquired a $20M yearly loss.
It would be great if author of the article did not twist the facts and would actually understand what comparable companies in this space have sold for. Virtual Iron is right in the middle of these comps.
They paid ~$15M. Author is right, it was bad.