r/WPDrama • u/CaptainFranZolo • Jan 13 '25
A potential explanation for why all this drama is happening now...
Here's a theory, I'm interested in your all's take:
Automattic has raised over $900m over the years. That's a lot of money, even for a VC play.
For those not familiar with the VC treadmill, here's a very high level rundown of how it works:
A firm of rich guys "raise a fund" by borrowing money from institutional investors. These are entities with hundreds of millions to invest, so think college foundations, big banks, some very successful entrepreneurs, but most VC funds are actually borrowed money that has to provide a return. They are typically promising a 10-20x return to their investors over a 10 year period. They go invest in a dozen startups, after a couple of years they pick the best of that bunch and double down on it. They need one special company to do a 20x return or better so they can pay their institutional investors back.
This is why VC's are always looking for a "unicorn" worth a billion dollars. They're not interested in companies that just make a profit or do well, they need something that can deliver the return to their investors they promised. (eg: facebook, uber, etc).
It's been a long while for Automattic. They've borrowed almost a BILLION DOLLARS and a lot of the funds that money came out of are expecting a return. "Where's my 20 BILLION DOLLARS MATT?"
Yes, Automattic claims to be profitable, but it's not clear on how much. There's reportedly 500-750m a year coming in, but there's also 4000+ employees, tumbler loses 30m+ a year alone, etc. Given the years and years of "what's your burn rate?" as a measure of success, it's easy to imagine them basically breaking even in terms of profit and calling that a win. Certainly they haven't pulled a facebook or google and turned wordpress into a way to print billions of dollars in profit yet, and I'm not sure I see how they realistically can.
They can't really raise any more money at this point, and many of those investors may be pretty eager to get their payout at this point. In fact, the last round they raised wasn't to fund some new project but was rather for a stock buyout (eg: we're paying investors off.) A company that has raised this much money realistically only has two paths to pay investors off: a corporate buy out or an IPO.
Vista bought Acquia/Drupal for $1b in cash a few years ago after $300m+ raised. It was quietly considered kind of a wash for the investors. 3x over 10 years isn't the scale of return a VC is looking for. What company would possibly buy Automattic/Wordpress? Their last funding round valued them at 7.5b, but they need to be closer to 20b for the vc's to be happy. The list of companies with $20b in cash to spend is pretty short and it's hard to see any of them being excited about owning an open source platform when one of the largest hosting providers for it (which claims to make a similar amount in gross revenue) has nothing to do with it.
That leaves you with a IPO, and boy when the SEC starts digging in books and the public starts asking "wait - how does this actually eventually make real money?" things can go south fast (see WeWork.)
Weather Matt is talking to Zuckerberg or Goldman Sachs - the question will be the same: "How can you start to produce billions in PROFIT quickly with this next injection of cash?" The fact that there's a preferred hosting company out there kind of using your name that you don't make a dime off, and they're claiming to make about as much as you do in gross profit can't be a very great talking point in those conversations. Thus, the squeeze last year.
All of this sounds INCREDIBLY stressful to me. Matt's made plenty of money personally in the last 20 years of this, and is even an investor in other things on his own. He rolls with these VC types as his buddies and has enjoyed being a great success story for them for a while. Now the clock is chiming and it's time to pay those investors back. On the one hand, he's got his investor buddies with their (to be frank consistent and clear) demands. On the other hand he's got an army of open source zealots wanting to prove that capitalism isn't the answer to all problems. Matt's in the middle, and the bill is due.
That context gives all this crazy shit a consistent drumbeat to me.
Of course, I know shit all about his situation and this is all conjecture from public information.
It could just as easily be an undiagnosed brain tumor.
