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This means Sequoia expects Docker to either go public or to be acquired for at least (10 * $40M / sequoia_ownership) in order to be considered a "win," right?

This means Sequoia expects Docker to either go public or to be acquired for at least (10 * $40M / sequoia_ownership) in order to be considered a "win," right? (A "win" in the sense of being worth the VC's investment, not in the sense of being valuable to the world.) The reason I say this is because a VC who merely breaks even on investments will eventually go out of business, so it would be a mistake to invest unless the expectation is that Docker might be a win for them. Assuming Sequoia owns, say, 35%, then that comes to an expected acquisition price of about $1.15B for Sequoia to earn 10x their money back. What are some hypothetical scenarios which end with Docker going public? What are some scenarios where a company would acquire Docker for north of $1B? I'm not trying to imply anything about Docker with these questions. Personally, I love Docker. It's just fun to theorycraft.

ig1 12y ago
Generally the multiple expected is lower for later stage rounds as there's less risk. Also Sequoia wouldn't have got anywhere near 35%. That said the investors would certainly be looking for >$1bn exit.
- nickstinemates 12y ago
  > Also Sequoia wouldn't have got anywhere near 35%. Bingo! I don't think anyone would be interested in taking a round that would dilute us this much, especially when the need for money is not pressing.
  - sillysaurus3 12y ago
    The smaller the percentage, the higher the expected acquisition price. For a 10% ownership stake from a $40M investment, the acquisition would need to be $4B just to earn 10x their money back. I was just wondering about some scenarios where Docker could achieve that kind of price.
    - nickstinemates 12y ago
      You haven't taken in to consideration an important variable - how much of the 40M is invested by Sequoia vs. pro rata by existing investors.
      - spullara 12y ago
        This doesn't actually matter assuming the 40m bought 10%.
      - benologist 12y ago
        Why does that matter, the other investors are hoping for returns too?
        nickstinemates 12y ago
        I was talking specifically about the equation, not about the expected returns of investors.
        benmathes 12y ago
        preferred vs common, participating preferred vs common (i.e. liquidation preference), possible pro-rata rights (thought at this stage further financings are probably unlikely) disclaimer: I work at greylock, who was an earlier investor, though have _zero_ inside knowledge of the deal as I work on unrelated stuff.
wastedhours 12y ago
Also, VCs adding pieces of the stack to their portfolio is interesting. Assumedly some of the Sequoia companies will be thinking about Docker use, Docker already has paid plans, so some of their cash "stays in the family", they own and have a vested interest in the success of deployments further up the line, driving more revenue back down. Not that I'd imagine Sequoia has to do this or has any issues with deal-flow, but any company doing cool things running on containers, who's going to be the VC they call first?
wslh 12y ago
It is obvious that Docker will be acquired very soon. I think the Sequoia investment is a very safe bet, almost a gift. Companies such as VMware are nervous because less VMs are deployed with Docker and there is less impact in performance. Docker doesn't replace VMs but there is an intersection in their use cases.
- nickstinemates 12y ago
  By whom? And for what purpose? If Docker was about to be acquired, why would there be any interest in raising a round? That dilutes everyone for no purpose. That's not smart.
  - wslh 12y ago
    > By whom? And for what purpose? VMware? Google? Amazon? RedHat? HP? IBM? > If Docker was about to be acquired, why would there be any interest in raising a round? That dilutes everyone for no purpose. That's not smart. It moves the valuation up and it increases the chances of being acquired.
    - boyaka 12y ago
      I believe the ideas of containerization used by docker actually cam FROM Google. I remember listening to a speaker talk about how it was based on what Google uses for their production server and is docker is a way for them to share that technology without actually sharing their own proprietary stuff. So I doubt Google would be interested, and I think most other big companies should already have solutions to this problem (at least Microsoft and Amazon for sure).
      - wslh 12y ago
        The idea of containerization is older than Google. You can take a look at http://en.wikipedia.org/wiki/Operating_system%E2%80%93level_virtualization http://en.wikipedia.org/wiki/Operating_system%E2%80%93level_... Companies such as Microsoft and VMware who are leaders in the Windows application virtualization sector (via App-V and ThinApp) don't have complete solutions in this space. Their solutions do a lot of tricks to simulate a container (e.g: user mode hooking, filtering drivers) while Docker uses kernel extensions.
jonknee 12y ago
VMWare is valued at over $40B currently. They could scoop up Docker for a couple % of their market cap. I'm not saying that will happen, but it really wouldn't surprise me. There have been a ton of lofty acquisitions in this space.
- Karunamon 12y ago
  Gods I hope not. VMWare's change resistance, pricing model, and overall attitude and (lack of) responsiveness to customers is not something I want to see applied to a project like Docker.
tracker1 12y ago
I'm curious as to how Docker.io and CoreOS.com live in harmony... I mean, CoreOS is built around Docker.io as a core piece, but I can see it overshadow docker proper in terms of money to be made in the long run. It will definitely be interesting.

ig1 12y ago

Generally the multiple expected is lower for later stage rounds as there's less risk. Also Sequoia wouldn't have got anywhere near 35%. That said the investors would certainly be looking for >$1bn exit.

nickstinemates 12y ago
> Also Sequoia wouldn't have got anywhere near 35%. Bingo! I don't think anyone would be interested in taking a round that would dilute us this much, especially when the need for money is not pressing.
- sillysaurus3 12y ago
  The smaller the percentage, the higher the expected acquisition price. For a 10% ownership stake from a $40M investment, the acquisition would need to be $4B just to earn 10x their money back. I was just wondering about some scenarios where Docker could achieve that kind of price.
  - nickstinemates 12y ago
    You haven't taken in to consideration an important variable - how much of the 40M is invested by Sequoia vs. pro rata by existing investors.
    - spullara 12y ago
      This doesn't actually matter assuming the 40m bought 10%.
    - benologist 12y ago
      Why does that matter, the other investors are hoping for returns too?
      - nickstinemates 12y ago
        I was talking specifically about the equation, not about the expected returns of investors.
      - benmathes 12y ago
        preferred vs common, participating preferred vs common (i.e. liquidation preference), possible pro-rata rights (thought at this stage further financings are probably unlikely) disclaimer: I work at greylock, who was an earlier investor, though have _zero_ inside knowledge of the deal as I work on unrelated stuff.

wastedhours 12y ago

Also, VCs adding pieces of the stack to their portfolio is interesting. Assumedly some of the Sequoia companies will be thinking about Docker use, Docker already has paid plans, so some of their cash "stays in the family", they own and have a vested interest in the success of deployments further up the line, driving more revenue back down. Not that I'd imagine Sequoia has to do this or has any issues with deal-flow, but any company doing cool things running on containers, who's going to be the VC they call first?

wslh 12y ago

It is obvious that Docker will be acquired very soon. I think the Sequoia investment is a very safe bet, almost a gift. Companies such as VMware are nervous because less VMs are deployed with Docker and there is less impact in performance. Docker doesn't replace VMs but there is an intersection in their use cases.

nickstinemates 12y ago
By whom? And for what purpose? If Docker was about to be acquired, why would there be any interest in raising a round? That dilutes everyone for no purpose. That's not smart.
- wslh 12y ago
  > By whom? And for what purpose? VMware? Google? Amazon? RedHat? HP? IBM? > If Docker was about to be acquired, why would there be any interest in raising a round? That dilutes everyone for no purpose. That's not smart. It moves the valuation up and it increases the chances of being acquired.
  - boyaka 12y ago
    I believe the ideas of containerization used by docker actually cam FROM Google. I remember listening to a speaker talk about how it was based on what Google uses for their production server and is docker is a way for them to share that technology without actually sharing their own proprietary stuff. So I doubt Google would be interested, and I think most other big companies should already have solutions to this problem (at least Microsoft and Amazon for sure).
    - wslh 12y ago
      The idea of containerization is older than Google. You can take a look at http://en.wikipedia.org/wiki/Operating_system%E2%80%93level_virtualization http://en.wikipedia.org/wiki/Operating_system%E2%80%93level_... Companies such as Microsoft and VMware who are leaders in the Windows application virtualization sector (via App-V and ThinApp) don't have complete solutions in this space. Their solutions do a lot of tricks to simulate a container (e.g: user mode hooking, filtering drivers) while Docker uses kernel extensions.

jonknee 12y ago

VMWare is valued at over $40B currently. They could scoop up Docker for a couple % of their market cap. I'm not saying that will happen, but it really wouldn't surprise me. There have been a ton of lofty acquisitions in this space.

Karunamon 12y ago
Gods I hope not. VMWare's change resistance, pricing model, and overall attitude and (lack of) responsiveness to customers is not something I want to see applied to a project like Docker.

tracker1 12y ago

I'm curious as to how Docker.io and CoreOS.com live in harmony... I mean, CoreOS is built around Docker.io as a core piece, but I can see it overshadow docker proper in terms of money to be made in the long run. It will definitely be interesting.