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Olson’s Observations

Technology. Innovation. Science. VC. Media. :: by Eric Olson

Automattic and Partial Founder Buyout

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I was as surprised as most when I heard that Automattic - the guys behind WordPress - turned down a $200mm buyout offer but it looks like Mr. Arrington may have uncovered the reason why. It looks like Automattic’s investors aren’t ready to cash out quite yet and would like to do another investing round.

Ho hum you say? So what? Well, there is a twist to this new round of funding. Apparently “most” of the money will go straight into the founders bank accounts. Yup, that’s right, it looks like the founders are going to be partially bought out by their investors.

This new round of funding will be lead by existing investor Polaris Venture Partners and is rumored to be somewhere around $50mm.

It seems as if the investors think the company can surge past the $200mm offer and head toward a bigger sale but, with only $1.1mm put into the company meaning the founders still own a lot of it, the founders thought the $200mm was a good price. To keep the deal on the table the investors have agreed to simply buy some of the founders shares in the form of another round of funding.

Of course a lot of folks, including myself, have talked about this type of situation but this may be one of the bigger instances it actually happening should the deal prove to be true.

I will be eagerly watching this as it plays out to see if:

a) The partial founder buyout pays off for the VCs in the form of a bigger sale price.

b) The founders stay as committed to the business even though they have a lot of cash in hand.

I am not sure Automattic is worth more than $200mm but we’ll see they may have something up their sleeves. As for the founders still remaining engaged - I have always argued that they would out of passion for their idea/product but this was in the context of much smaller amounts of money ($1mm - $3mm or so). However, I want to believe that, in this case, the founders still feel that Automattic is their baby and they will want to see it reach its potential. We’ll see…

This could prove be a big data point for the idea of partial founder buyout.

Written by Eric Olson

November 14th, 2007 at 5:27 pm

Posted in Business, Technology, VC

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