Wednesday, January 23, 2008

Automattic.Com Success Story

nternet company Automattic Inc., which distributes the popular WordPress blogging software, said it has raised $29 million from investors that include New York Times Co., after spurning an acquisition offer last year.

The San Francisco start-up and its investors declined to name the larger Internet company that made the buyout bid, which came a few months ago. But the offer valued Automattic at between $150 million and $200 million, and helped prompt the new round of financing, said Phil Black, an Automattic board member and partner at True Ventures, which is putting up some of the money.

The offer "crystallized our thinking that it would be nice to have some more capital on the balance sheet for growth, and to build a more exciting platform," he said.

Automattic's move highlights the conundrum many venture capitalists face as they scramble to make money amid a lackluster market for small-company, initial-public-stock offerings. With IPOs out of reach, many companies are instead weighing offers to be bought by larger firms -- even though the prices are often too small to make VCs large profits.

In Automattic's case, the decision to reject an acquisition offer was likely easier, since original investors True Ventures, Radar Ventures and Polaris Venture Partners had invested only about $1 million in the company before the current $29 million financing. That means even a small acquisition offer could have been very profitable for them. Still, Automattic's investors are taking pains to keep the company's founders motivated: Some of the $29 million will be used to help company founders and others cash out some of their holdings in the private company, Mr. Black said. The practice has become more common in Silicon Valley as start-up founders spend longer building their companies without any payday.

Automattic, which has about 18 employees, also will use the new cash to add staff and possibly pursue acquisitions. About 2.2 million blogs have been created using WordPress, says Raanan Bar-Cohen, a company vice president. The company's software is free, but Automattic makes money through selling premium services and advertising, among other revenue streams. Mr. Bar-Cohen said the company is profitable.

The Times, which uses WordPress to publish the blogs on its Web site, hopes to share content with WordPress and possibly publish interesting blog posts that have been composed with its software. The Times also may work with Automattic to help train more of its employees in blogging, said Martin Nisenholtz, the newspaper's senior vice president for digital operations. In addition, "we think it's a good financial investment," he said.

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