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Is GitHub Selling Out or Moving Up?

After years of adamantly flying solo, one of the industry’s most prominent and successful bootstrappers just took $100 million from a prominent venture capital firm. Why did GitHub do it, and is the company abandoning its principles or making a smart move for future growth?

Abandoning Bootstrapping

Social coding site GitHub was the poster child for the bootstrapping movement, and it was proud to be fighting the system. One of its founders even passed up $300K and a steady job at Microsoft to start the project. Within a year, the company (which bills its code-sharing platform as “Wikipedia for developers”), had made itself the leader in collaborative development, with a growing staff and a profitable ledger.

After a few early stumbles, GitHub has remained securely in the black and continued to build, so the announcement that GitHub was seeking financing from Andreessen Horowitz came as a bit of a shock. Unlike Yammer, which had a good product but faced a crowded market, GitHub really didn’t need the money to continue its climb. So why would a successful company with no one on its tail take the money now, when everything was already rolling just right?

GitHub’s official blog post put it this way: “Because we want to be better” and “the resources of Andreessen Horowitz can help us do that.”“ That’s a bit vague (“Who doesn’t,” and “Duh,” respectively). In the end, the deal boiled down to “fit,” which GitHub mentioned, and “a whole lot of money,” which it didn’t.

The Fit

Marc Andreessen is not Henry Kravis. He’s as concerned as anyone with turning a profit and justifying valuations. But at heart, he remains an open-source geek who wants to build things. To that end, he’s invested in enterprise technology companies that play in the same sandbox as his own development efforts. It’s easy to see GitHub sitting alongside other Andreessen Horowitz businesses such as snapLogic and Science Exchange (both of which attempt to manage crowd-sourced components in their own ways). And it’s a pretty good guess that Andreessen already uses GitHub.

Since GitHub is already profitable, Andreesen won’t have to try to fix anything, and GitHub won’t have to worry that he’ll try. His presence on the board will likely be focused on guiding GitHub’s growth efforts, and as VCs go, Andreessen is a pretty sympathetic heavy. He also brings a lot of experience to the table, particularly in the realm of partnerships.

The Money

$100 Million is an awful lot of money – probably enough to fund GitHub’s current staff for a decade. It will certainly help the company branch out into more innovative businesses. But even if GitHub squanders every penny, it has successfully placed a $750 million price tag on the business. Andreessen will sit on the board, but that’s hardly a bad thing to a company whose founders clearly idolize the man. The founders retain control, and they’ve gained a very strong voice with a vested interest in keeping that valuation high in future rounds of funding.

So in the end, it’s the best of both worlds. GitHub didn’t sell out, but some day, if and when the founders decide to, they’ll be able to do it in style.

Lead image courtesy of Shutterstock.

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