VA Linux: The biggest dotcom IPO

Summary

One of the more curious dotcom era startups was VA Linux. In a way, it makes sense, because so much of the dotcom boom was powered by Linux, so we’d expect a Linux company to do well in those times. But VA Linux operated on a business model that doesn’t really exist anymore. Its December 9, 1999 IPO set a record for its time.Linux in the dotcom eraVA Linux was a hot stock for a while, selling PCs with Linux pre-installed and guaranteed to work well.Arguably, the most successful Linux startup of the dotcom era was Red Hat. Red Hat survived as an independent company for nearly 20 years, before being purchased by IBM in 2018. IBM needed to modernize its portfolio, and Red Hat was a good fit.But during the dotcom boom, Red Hat wasn’t the strongest performing Linux startup. VA Linux held that title, with its stock price surging 698% on December 9, 1999, the day of its IPO, setting a record for the time. Its share price shot up from $30 to $239 per share. It raised $132 million, nearly double what Microsoft raised in its IPO. And its market capitalization reached $9.5 billion, 12 times what Microsoft’s market cap was after its IPO.Not bad for a company that still hadn’t turned its first profit yet. To draw a more recent parallel, early in the dotcom bubble, VA Linux looked to investors like it might become like AMD or Nvidia during the golden age of AI, or arguably better since it offered the opportunity to get in on the ground floor.Investors were smitten, at least at first. But a year later, it was trading at $8.49 a share. At some point, investors remembered that a company needs to make money to be worth $9.5 billion.What did VA Linux do?Founded in November 1993 as VA Research, VA Linux sold professional workstations and servers with Linux pre-installed. At its peak, it held about 20 percent of the Linux hardware market. It started when the company’s founder, Larry Augustin, wanted a Sun workstation but couldn’t afford one, so he spent $2,000 building himself a 486-bas...