Small Business

Buy -- or We Die!


Usually, when small companies get into deep trouble, they cut costs to the bone and plead with bankers for help. But MandrakeSoft is no typical startup. When the wolf is at the door, this Paris-based seller of the Linux computer operating system simply appeals to its fans for money.

Just before Christmas, MandrakeSoft posted a plea for help on its Web site. Faced with the need for $4 million, it asked customers and friends to buy products, purchase stock, or join its users' club -- whose benefits include voting on new features in its products.

SHOT IN THE ARM. It's all totally in character with the sharing philosophy of the open-source movement from which Linux and MandrakeSoft come. MandrakeSoft tried a similar gambit in March, 2002, convincing small investors to pony up $600,000 for stock. This time, the focus is on revenues, and CEO Francois Bancilhon says his appeal yielded hundreds of thousands of dollars in additional sales at outlets that include Wal-Mart and Staples.

But it wasn't enough. MandrakeSoft announced on Jan. 15 that it had filed for protection from its creditors.

Bancilhon, who joined as its CEO three months ago, came aboard with the goal of turning MandrakeSoft around. The outfit, known for its easy-to-use version of Linux, found itself overextended last year. Bancilhon, a former chief information officer at SomaLogic, a biotech company in Boulder, Colo., cut the staff from 85 to 60, extended a contract with Hewlett-Packard to include copies of MandrakeSoft Linux with some of its computers, and is now preparing a new version of the operating system tuned to run on server computers, which has been a more successful market than the desktop realm.

ONE MONTH AT A TIME. Even for the Linux world, MandrakeSoft is mite-sized. It reported revenues for the fiscal year ending last September of just 4.7 million euros, up 31% from 3.6 million euros the previous year. Its loss was 6.1 million euros, down from 13.6 euros the previous year. Its stock, which is listed on the Marche Libre in Paris, an unregulated stock market, is trading at about 2.27 euros, giving it a market capitalization of just 7.7 million euros.

In spite of the show of support from customers since Christmas, MandrakeSoft needs more cash. Bancilhon is trying to line up venture capital. For now, "We have enough cash to go to the end of the month, but we're struggling," he says. If he doesn't get more help soon, this game will end with a lop-sided score: raw capitalism, 10; warm and fuzzy French guys, nothing. By Steve Hamm in New York


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