Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: ColtonGang who wrote (112907)	8/30/2000 4:30:25 PM
From: ColtonGang	Read Replies (1) \| Respond to of 120523

Linux incubators overcome harsh environment By Sam Williams August 30, 2000 In many ways, Randall Sprolles is like most mainstream Linux investors. The father of a college computer science student, Sprolles says he didn't find out about the free software operating system until he started reading magazines in an effort to catch up with the latest high-tech trends. "It seemed like everywhere I looked I ran into information about this operating system called Linux," he says. "I started looking for ways to make investments in it but found there weren't any." -------------------------------------------------------------------------------- Sprolles and Perens formed a startup dedicated to getting other startups to market. -------------------------------------------------------------------------------- Unlike most investors, however, Sprolles, owner of Financial Research Associates, an Abbingdon, Va.-based mergers and acquisition consulting firm, wasn't used to getting shut out of a prime investment opportunity. Rather than wait for a chance to buy Red Hat (RHAT) or VA Linux (LNUX) on the inflated open market, he began looking for other ground floor opportunities. Admitting that he "didn't know a line of software code from a book of fiction," Sprolles says he decided to go with his M&A-honed instincts. He started cold-calling Linus Torvalds until the Linux kernel creator picked up the phone. "I figured I might as well start at the top of the pyramid and work my way down," recalls Sprolles with a chuckle. Fortunately, Sprolles wouldn't have to descend too far. Although Torvalds passed on Sprolles' partnership offer, he referred Sprolles to another leading name in the Linux community: John "Maddog" Hall. Hall, too, would pass but not without giving him a third name: Bruce Perens. Ready for a challenge Perens, a developer whose resume includes working for Pixar (PIXR), managing the Debian Linux project, and writing the initial version of the Open Source Definition, didn't need much selling. After taking a few years off following the Pixar IPO, Perens said he was ready for a challenge. "I'd been telling businesses what to do with open source for so long," Perens says. "I figured it was time to practice what I preached." Together, Sprolles and Perens formed Linux Capital Group Inc., a startup dedicated to getting other startups to market. At first, the timing seemed too good to be true. In the time it took Sprolles and Perens to paper over their initial handshake contract, the first crop of open source startups had already shipped to market, with lotterylike results. Add the sky-high December valuations on dotcom incubator companies such as CMGI (CMGI) and Internet Capital Group (ICGE), and suddenly Linux Capital Group looked like a can't-miss prospect. "We had a combination of the hottest trends: startup incubators and open source," Sprolles recalls. "Watching the market, you could see investors falling over themselves to get in on it." Running with the herd can be dangerous sport, however. Even before April's Nasdaq reckoning, Linux stocks were already in retreat. By the end of spring, Linux stocks had become mud in the eyes of Wall Street investors, as had the high-tech incubator concept. Indeed, considering the performance of mainstream Internet competitors Internet Capital Group -- which lost about 85 percent of its market valuation between December 1999 and May 2000 -- and Safeguard Scientifics (SFE) -- whose stock price lost about 27 percent in April -- selling a Linux incubator to institutional investors must have been like selling souvenir portions of the iceberg to Titanic survivors. Still, Linux Capital Group managed to stave off oblivion. Sprolles admits that the past eight months have been a bit of a "roller coaster ride," but says the company's newer down-scaled investment approach seems better-suited to the open source community's needs. Instead of incubating a whole henhouse worth of startups, the LCG basket currently contains only two eggs: Progeny Linux Systems Inc., a network computing startup headed by Debian co-founder Ian Murdock; and KnownSafe, a professional security consulting company. "Obviously, we're developing slower and with less companies than we originally planned," he says. "On the other hand, I think it's good long term-wise. Nothing goes to the sky. If it does go to the sky, it's going to fall out of the sky. What we have now is a lot more realistic, a lot more planned for the future."