A promising open-source company bites the dust

Ringside Networks was a very cool company - one of the best new open-source companies, as I wrote earlier this year. The company had a dream similar to Ning's - to make social networking-type applications an integral part of a wide array of websites and enterprises.

This past month, however, even as Ning neared 500,000 social networks (at least one of which is not used for porn! Go figure!!), Ringside went down for the count.

Why? How could a company flush with some of the best venture money in the business - Matrix Partners - go under even before it really had a chance to sell into a welcoming market? Bob Bickel, Ringside's co-founder, explains:

We were ready for our Series A round of funding, and in late May we received a number of term sheet offers from the very best VC firms. As we were about to finalize our funding, one of the biggest non-evil Internet companies asked if we would have interest in being acquired instead. After a lot of thought and debate, we decided that the larger company would enable us to get our technology to market sooner and with more impact.

The story sounds almost too good to be true. And it was. After dragging out the process for most of the summer, the non-evil company decided that they really did not want to acquire the company after all. Recommendation: always beware of wolves dressed as Grandma, they may be more like Microsoft than they admit.

"Don't be evil," indeed.

Actually, this is not so much a chance to rip on that-non-evil-company as it is a cautionary tale for all companies, open-source or proprietary, hoping to be acquired in a recessionary market. True, with the IPO market all but closed, an acquisition may be the only viable exit. But before you go sprinting for the exit, remember Ringside.

The less you need an exit, the more likely you will be to get one at an attractive valuation. As such, the first order of any business is...business, not selling the business. So long as you keep in mind that your primary customer is Wal-Mart, AutoZone, Citigroup, etc., and not Oracle, HP, IBM, etc., you should be fine.

[ShaunRConnolly]

The Ringside development team was working on some really cool stuff over and above their base social application server.

I posted a video demo that shows SocialPass in Action; using TicketMaster.com as an example.
Kinda puts a face on what making an existing website social really means.

You can find the blog post at:
http://tinyurl.com/4y545m

or:

http://connollyshaun.blogspot.com/2008/09/socialpass-in-action-ticketmaster-demo.html

[NicolasVDB]

Matt,
That doesn't make sense: if the company is so great that they got term sheets "from the very best", surely they'd be able to get funding even after this type of bad surprise, no?
The site is still up. Did they really "go under" or are they just struggling to close their financing?

[Matt Asay]

I've hired a few people from Ringside, including a co-founder. It's no longer operating.

As for how it could get term sheets and still go down, the term sheets came before the black eye from looking too interested in an early exit. VCs like to pretend that their portfolio companies are in it for the IPO or a longer-term M&A exit. Ringside did the right thing in working with G___le toward an acquisition, but the price of not going all the way is steep, as Ringside discovered.

[NicolasVDB]

Thanks a lot for the response.
That's an incredible story - talk about risk management and hedging your bets!

Do you know what happened to their assets? have they been sold yet?

[Matt Asay]

I'm sure they're in talks to sell the assets or, as Shaun notes below, something else may be in the works. Frankly, Microsoft or someone in the ECM market should buy the assets, as this sort of ad hoc social web would fit perfectly with bringing people together to collaborate on a document, for example.

[ShaunRConnolly]

A phoenix may rise from the ashes. :-)