Is Npm worth $2.6MM? | Hacker News Reader

Is Npm worth $2.6MM?

words.steveklabnik.com

134 pointsCorrado51 comments

It is an interesting insight that a VC can improve their internal rate of return by investing in open source. It seems like a continuation of the process of outsourcing manufacturing engineering for hardware.

It will be interesting when this becomes pitch material, something like "Hey all your portfolio companies need an HR resume/lead management system, fund us to build an awesome open source HR system and they can all use it for free!"

since npm doesnt scale they will sell private repos to big businesses...kidding. well almost,since the only money to be made with npm is in consulting fees.

Surely any money going into FOSS technologies, be it $2.60 or $2.6MM, is good news for everyone involved?

I don't use Node.js - RoR is more my thing - but if this money allows the project to hire talent and increase the quality of the codebase and documentation, they're going to attract developers from other frameworks.

Even the die-hard supporters that refuse to budge, Node may develop new paradigms that can be ported over.

Investment in FOSS is a good thing, IMO. Just because it came from a VC shouldn't discredit its possibilities.

Sure it's likely good for the FOSS community, but he's addressing the question of if it's good for the investor. On the face of it, an open source package management system doesn't have an obvious profit model, so it's not obvious to many people how anyone would expect to make a return on investing in NPM.

The recent interview on Javascript jabber with the NPM guys was very interesting, and covered some of this.

Link: http://javascriptjabber.com/099-jsj-npm-inc-with-isaac-schlu...

> This means that a16z and GitHub management are protected from a acquisition, and can retain control of GitHub.

I don't know what this means, exactly. Avoiding acquisition isn't like avoiding, say, snipers; you can just say no. Certainly acquisition is, for the moment, not feasible, but that's not exactly protection (it's actually the removal of an option). Protected from the need to be acquired, maybe?

I'm not trying to be pedantic; I'm honestly confused by the phrasing.

Not always, i.e. drag along rights. Depending on how you structure your deal investors can override founders on acquisition offers.

Good point, but I can't quite square that with the article, so I don't think that's what it has in mind.

a16z is almost certainly doesn't own a majority of GitHub, so it's not entirely their decision.

I think it's about trying to take the question of acquisition off the table completely. The people who put money in to a16z's fund might be unhappy if they turned down an offer. The other people/groups (employees and angel investors) who hold shares of GitHub might be unwilling to turn down a big payout, when, in this case, a16z wants GitHub to keep existing and working closely with them. If the company is essentially overvalued from this investment, no one's going to make that offer.

To your point, I don't see how that benefits GitHub's management, though, unless they value independence over profit (which is entirely possible, but I have no idea).

> Someone has to pay that S3 (I guess CouchDB) and EC2 bills

Previous package managers have done well running on public mirrors donated by universities and businesses around the globe. rubygems finances itself via a non-profit. There is nothing necessary about NPM's business model, IMO it's just a side-effect of the incredible tolerance for private ownership within the node ecosystem. I can't imagine this model would fly for any other language/platform.

Python's PyPI gets donations from Rackspace (hosting) and Fastly (CDN) to run. See the note at the bottom of https://pypi.python.org/pypi

Scala seems roughly similar.

How?

It is owned by a single corporate entity who is also its primary sponsor, Typesafe. This is similar to how Joyent owns node, and how they sponsor it's development, along with NodeJitsu, Microsoft, Heroku and others.

No. It's "owned" by the EPFL.

As someone not so familiar with venture capital, why do you denote million with "MM" and not just "M"?

Technically speaking, the roman numeral "M" stands for one thousand. So "MM" = "thousand thousand," or million.

These days it's a matter of preference as to which abbreviation to use. You'll see different people and different firms using either/or. (And a lot of people are now using "k" for thousand and "M" for million.)

If we want to get even wonkier, we could note that the English word "million" derives from the French word "mille," meaning "thousand." ("Mille" derives from the Latin, and the original Latin denotation is used to mean "thousand" in familiar words like "millennium," "millisecond," and "millipede.") The word "million" was originally invented to mean "a great thousand," or "a thousand thousand."

I thought MM would be 2000 if one used the Roman system. It's some sort of weird Roman system with maths in between the the Ms assuming I'm correct.

True. I'll confess that I'm not 100% sure how "MM" originally came to be used in financial and accounting notation. But it's been used to mean "million" by way of "thousand x thousand."

It's possible the M's in the financial notation system are not actually Roman numerals, so much as abbreviations of the word "mille" (or some equivalent thereof).

And a lot of people are now using "k" for thousand and "M" for million.

Those are the SI prefixes after all. :)

Postfix surely?

No, prefixes, as in kg. Money, as we have seen in this thread, does not use SI stuff at all, so talking about it this way is awkward, since $100k appears to have an SI "suffix" when technically it carries an SI "prefix." But US people usually do not say "100k USD"; they believe $ always means USD. People in other countries using $ know their dollar sign is likely to be confused, so are more likely to say "100T ZWD" etc.

Yeah, it's kilodollars, just written "$100k" rather than "100 k$" conventionally. But it's fairly clear that what's being multiplied is the base currency unit (dollars, euros, whatever). For historical reasons currencies give the units via a symbol before the number, instead of a letter after it: €10, $10, £10.

Depends on the country. Most people in the eurozone use "10 €", not "€10". However, when adding SI prefixes most people would append the prefix to the amount, rather than prepending it to the unit e.g. "100k €".

Others here have covered the fact that M means thousands to many people. But where does it come from?

As best I can tell, it comes from the fixed-income markets, where MM/MMM/MMMM have been used for many decades. This convention is not universal in finance--you often see monetary policy news using M/B/T instead. And applications not targeted specifically at finance professionals often use M/B/T (e.g. Google/Yahoo Finance). The most widely-used finance application after Excel is probably the Bloomberg terminal, which uses MM/MMM/MMMM for all asset classes (n.b. Bloomberg originally was most focused on bonds, so of course they adopted that convention).

Once you have arrived in the present situation, where M can mean either thousands (to the weird bond people) or millions (to laypeople), you realize that MM is understood as millions everywhere, if not right away. That's better than ambiguity. And B for billions is a little wonky anyway, because not every language calls it a billion (the Dutch, French, and Polish all start their "billions" with an M).

Ahhh! Roman numerals!

©MMXIV

Enlightened self-interest does not usually achieve preservation of the commons. It is not clear from this article, what specific additional insights into the community an investor can expect to receive as a consequence of their investment. i.e. over and above npm being a public resource available to all (including free-riders). Perhaps it is better to think of these infrastructure services as baubles of the VC. Much as a Venetian merchant might have "invested" in opera or a cathedral. Anyway, I don't think the hit-and-miss nature of VC justifies this type of investment; where it is known in advance that a particular company does not make its 10X return.

I think that the investors may not just be looking to solidify infrustructure for other investments. The majority of start ups have little income and relatively few customers. Npm has a huge number of customers and whether it can generate a huge amount of income through private registries or whatever services, the fact that it is a core piece of infrastructure is a huge advantage in launching services. So a VC has good reason to expect a useful amount of income. That isn't actually the case for many investments. I don't see how anyone could suggest that this is a large investment for such a core piece of infrastructure.

> Npm has a huge number of customers

> VC has good reason to expect a useful amount of income

I'm going to be pedantic, but within reason: users != customers. I know you mentioned that they have yet to attempt to monetize, but until they try we can't make accurate predictions on their level of revenue. I think the author is trying to say VC's aren't trying to play a game of make believe when it comes to future revenue, but rather are making the investment in the community.

This is definitely interesting and insightful, especially the lead-gen aspect of investing in OSS with the prospect of future leads. Kind of like a16z investing in PandoDaily - surely that won't provide a legit return, but it will give high visibility into the ecosystem.

However, I disagree about the Github portion.

The Github investment was the perfect type of investment. They conquered the consumer side of the market, they knew their customer acquisition cost, were growing quickly and were profitable. It was the perfect example of just pouring gasoline on a fire to accelerate things.

The next logical step is to move into the enterprise, which they have been doing. I suspect that their customer acquisition costs into the enterprise are just as low as the consumer side - because they will have internal advocates from the same developers that either have a free/paid account on the consumer side.

So it is the perfect, de-risked, investment for any investor. A16Z happens to be cream of the crop, so they were lucky enough to get that deal.

Aside from that...OSS companies actually do make a lot of money. See Sun, RedHat, etc. Selling enterprise versions and support can be VERY lucrative. The only way to do that is to grow significantly and become a major player in the industry - which npm was slowly getting there, with the investment it did accelerate that likely. So I don't think they would see it as a loss-leader just to build out a funnel for future deals. That was likely just a bonus, or even "down-side protection" as it were.

I think this is great news. NPM is as vital to Node.js as Gems are to Ruby on Rails. If funding means NPM can provide better packages, better services and overall a better product as a result of the investment: everyone who uses Node.js wins in the end.

Although the idea of investing because of indirect benefits is interesting, I think the investment thesis is much simpler: You can build profitable business around open source, even if you make money by selling consulting.

Redhat has $10B market cap, MySQL was sold for $1B back in the days. nginx inc. received a substantial investment. Can you build profitable business around package manager? Sure, there is a big community of developers that are using npm on daily basis for mission critical work. It's really hard to build that kind of community of professionals in any field. I don't see why you couldn't build business around that.

I thought basically the same thing when I heard about it, but from a different angle: what would happen to VC investments if NPM imploded? Some stability for these companies is valuable.

I'm not sure of some of the implications of this article though; open source and money are not inextricably connected. While open source may be a loss leader in some cases, it does not need to be. All of what we now consider open source descends from a time when it was considered radical to think it was possible to make money from open source.

Is there any evidence that this thinking is true? has any VC employee ever implied that VCs invest in infrastructure firms to increase the probability of their other investments succeeding?

Of course not. It's pure speculation. But it was an interesting read.

I have nothing insightful to add, but I like this writing style.

This post is interesting, but I don't think it is entirely on target (the latter portion could be, but I'd need more evidence to be swayed). The author essentially paints a picture where open source startups are losers on their own, but that the smartest investors fund them to provide infrastructure to the community, like they are cooperating in a giant prisoner's dilemma of some sort. Also, that by investing in infrastructure you gain insight and access (this is the part I may agree with).

I don't think that investors (even Andreesen Horowitz) look at ANY investment and think, "Well, some of my investments are going to fail, I can take on this one and accept the hit to my returns." Getting LP commitments is very competitive, and you are stack-ranked. You can't afford to make investments that you don't think are going to be winners. To be fair, if there is anyone that could do this, it's Andreesen Horowitz, but that doesn't make them smarter, it's because they have the benefit of the doubt with LPs.

He says that these smarter investors will fund an open source project to multiply the returns of their other investments, but that ignores a likely truth. The opportunity cost of investing in the open source company to benefit from the infrastructure isn't that the infrastructure doesn't exist. It is that it is created slightly more slowly and you still get to benefit from the majority of its power, or that you are forced to use the next best infrastructure, which, if we are being honest, is quite nearly as good. I think it's likely that the next best alternative to npm is going to be 90%+ as good for your project with the same developers. Optimizing on a thin margin like that with respect to your other investments doesn't seem like good strategy.

Another factor to consider is that there have been open source companies that provided good returns to investors. MySQL sold for 20x invested capital, for example. You don't need to appeal to tenuous arguments about ancillary benefits of an investment when it could simply be that a company sponsoring an open source project with a boatload of traction just happens to be, from a risk-reward perspective, well-positioned to make returns in all sorts foreseen and unforeseen ways. We also don't know the valuation or deal structure, which could mean that the $2.6m investment is quite a bit more favorable to the investors than one's first impression.

I believe the strongest point he made is the last one, "They get insight and access at unprecedented levels into the future of Node, at the cost of something they can already afford to lose." Much of the effort in being a VC actually relates to "access." If you can get into some of the hot node deals by being known to be a shop that favors node, I could see how that might be worth it, though I'd need more evidence to be convinced they are thinking this way or that it's a good strategy. (Andreesen Horowitz can probably get into any deal they want, which is not the case for True Ventures) But that's different from thinking that by investing in npm you are going to make your other companies stronger by making npm available to them.

As miscellaneous commentary on his examples: GitHub is minting money, so investing in them was a crazy good decision no matter what the reason. Even if you think the liquidity event could be challenging for some reason, it still provides good reward for risk, and ultimately there are ways to handle lack of liquidity events (I also suspect that Andreesen Horowitz are more flexible in this regard for structural reasons, venture capital partnerships are quite complex in the details). Jeff Bezos doesn't have LPs so he can invest in 37Signals/Basecamp even if they are never selling, he just punches his dividend checks like the other owners, which can be just as good a return. The focus on liquidity events is a quirk of the standard fund structure rather than inherent to the asset class.

> I don't think that investors (even Andreesen Horowitz) look at ANY investment and think, "Well, some of my investments are going to fail, I can take on this one and accept the hit to my returns."

I'm not sure that's what the OP was saying. a16z is a $2.5b fund, so spending $100MM is only 4% of their fund. The point that he's making, is that the micro risk gained on just GitHub decreases the macro risk overall the whole portfolio. In other words, keep the assumptions concrete and businesses that utilize those assumptions will flourish.

Imagine you're an auto company, and money stops going into road construction, and therefore less people use the roads. A smart auto company may invest in construction companies. The only argument here is now do these constructions really need any extra money to keep them going? (I would argue no, they're already making enough money) In the same vein, does GitHub need more money to be motivated? (the answer is probably no, but as you point out, it's an extremely safe bet) That being said, it doesn't hurt to throw a small percent of your fund into road construction.

In my opinion it's OK as long as NPM Inc will follow the same model as github and docker, i.e. free public open source repositories and paid private repositories.

Another reason why VCs invest in open-source ecosystem is that it indirectly helps their other portfolio companies, even if original investment doesn't pay off.

I made this question to myself and couldn't understand how would they make money. Now with these great insights the answer is clear: they don't need to

I just wonder what will happen when they run out of money. Will be they able to raise another funding round?

Slightly off topic, but mm or MM as an abbreviation bothers me. Isn't there something better? How does it even work? Is is some sort of bastardisation of the Roman system where is would mean 2000? Am I missing something?

There are a lot of great insights in this post that most people who talk and write about startups completely overlook. Thanks for bringing reason and logic to HN.

If the seed round was for $2.6MM, does anyone have an inkling as to what valuation that was done against?

If you are referring to the model and not the amount, it will simply be private repo management.

Then RubyGems (thoughtbot) would be worth more after gem signing security is set to MediumSecurity by default (warn on unsigned gems) and certificates are managed.

Can do it today yourself instead... ~/.gemrc:

    gem: ... --trust-policy MediumSecurity # add this

Headline is incorrect. The actual value is $2.6MM.

That's referenced in the article itself. The phrasing was intentional, to fulfill Betteridge's law of headlines.

http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines

It's not normal use of the phrasing but I think the author's meaning is: "Is NPM worth [a] $2.6m [investment]?"

The author seems to think some VCs make investments with limited expectation for a return which I think is mostly wrong (I can easily see GitHub being acquired or IPOing).

No. The investment was $2.6MM.

No.

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