• Date2014-04-15
  • Duration32:04
  • DescriptionPhil Black is an early investor in Automattic.
  • Tagsautomattic, investment


Interviewer: Okay so I'm speaking to Phil Black, and it's Tuesday the 15th of April. Can we start off, can you tell me how you were first introduced to Automattic?#

Black: Yeah sure so Tony Conrad was officing with me in the Presidio here in San Francisco and he talked about this wunderkind of, of a young man, Matt Mullenweg, who he had been introduced to I think by Om Malik and we got to talking about you know a possible investment opportunity and so Tony was, when it kind of got to the point where Matt had moved to San Francisco and I think he was still at the time working for, it was CNET I think, right? I was, I'd had lunch or I'd met Matt at that time through, through that introduction.#

Interviewer: Okay, okay.#

Black: And that would've been, that would've been summer, summer of 2005. Fall, summer, fall 2005.#

Interviewer: So what made Automattic look like a viable company to invest in?#

Black: Well it didn't have much in the way of a company presence, right, I mean this, it was an open source project that had obviously had a, a fair amount of success. Automattic the company itself was, was really just Matt, and the movement behind WordPress, and so it was a bet on Matt and his ability to take this groundswell of support for WordPress and the, and the you know vision of democratising publishing, and moving that into a company that would eventually become self-sustaining, you know after a certain amount of investment capital.#

Interviewer: Okay. Did you have any concerns about investing in a company that was based on an open source project?#

Black: No is the short answer, but that's not a universal answer by a lot of, you know, investors, right. 2005 was a different time than now in terms, you know this is 2014, so since 2005 you know, I or the firms that I have founded, we've probably invested in 10 or 12 different open source companies, or you know, companies that are based on an open source project. And then there are many many many more that have elements of an open source element to them in that how they've, you know, created the business that they have. So there was very few successful open source projects that had become viable businesses, everyone always points to Red Hat so that one's the biggest one, obviously. But that, that was about it [3:00]. I think that the, the idea behind investing in Automattic in October 2005 was, you know, taking a relatively small amount of risk capital and putting that behind a, a really talented young man who had a vision for how he could disrupt the, the web. And how, you know, business as usual had occurred in the early days of the web and how he could really kind of make it a, a new kind of 2.0 kind of world if you will. And so there was no business model, there was no, I don't, I'm not even sure there were any other employees, and, and so it was really just a belief that Matt and the, the core group of, of WordPress supporters and users to date would be able to you know, take that and make it into something viable, which obviously has happened.#

Interviewer: Did you ever feel that Matt had a conflict of interest between his role as leader of the free software project and as founder of Automattic?#

Black: Oh I've often, you know, I've, I've kind of joked that there is, you know the line between the for profit company and the, the open source project that there's, that sometimes you know he found himself you know on the tightrope between those two, right, and so I, I think the, I believe that, that the best way to kind of get around any kind of conflict like that is to be very clear about what the open source project is. And what its role in the, in the world is. And then to also be very clear about what the for profit company is, and why, how it's going to, and how it will survive and be self-sustaining and satisfy, you know, the shareholders that it has, right? And so if anything, I felt like Matt has erred, to the extent that he erred, he erred on the side of kind of doing more for making sure that the open source project, you know, was getting more than it's fair shake versus you know kind of doing things for the, for the for profit entity. And I, you know I, in nine years on, I you know I applaud him for that. I mean he's, he's, he has done a remarkable job I think of, of marshalling the forces of, of a community, and having that be a vibrant community still, to this day. And having a for profit company that has, at times will have different you know goals, or different, different reasons for its existence. So it is, it's certainly something that I think Matt has been very much [6:00] aware of, ever since he started it.#

Interviewer: Can you think of any examples of times that he really erred on the side of the open source project that made you or any of the other investors unhappy or uncomfortable?#

Black: No it was never about being uneasy or about uncomfortable. I guess, I, I'll answer that in more of a, a little bit more of a, of an abstract way. Which is, if if, I asked the question, what is something that would make WordPress something just so much more awesome, right, than what it, than what it already is. And, and you could take examples of maybe things around security, or you could do things around speed or ease of loading, or maybe something around search, or something, right. And, and I, and so I would, I could ask that type of question and I could say so, why would, why shouldn't Automattic use its engineering resources to do that for, you know, for the, for WordPress and I think Matt's initial inclination is really like well if it's, if it's something that the entire movement would benefit from, it almost feels like that should be part of the, the core open source project. And, and not something that should be, that should be held out from additional monetary value. So, I don't have a specific one, there's been you know various discussions along the way about, you know, a particular feature or product or whatever. But it's that kind of discussion right, which I think is, if it is, if it's, if it benefits everyone, it should be more of an open source you know, kind of release. And if it benefits certain particular users who are willing to pay for additional feature functionality then that's an easier one for it to become an Automattic, you know, kind of product. But you know, WordPress being as old as it is, and I have old in quotation marks of course but you know we're talking about the web, rather than some of the other newer open source projects, you know Matt has really had to, he, he took a lot of, I think a lot of heat in the beginning from people who thought he was trying to be, who might, he was like selling out, or who thought he was you know doing something that he shouldn't have been for just, you know, for whatever reason. I don't think that a new, like we just funded a new open source project a couple months ago, and you know there was, there was some discussion about oh is this a good thing or not a good thing for this open source project. But it kind of was like, oh it was probably bound to happen, it was inevitable. And you know in 2005 when Matt was doing this with WordPress, I don't think that was the norm, and so I do think he took a fair amount of heat, some of it unnecessarily so, from, from folks in the, in the community back then.#

Interviewer: Do you remember any of, any instances of that? [9:00]#

Black: Oh there was, so you're in New Zealand right, so I believe there were some gentlemen down in Australia that were, were particularly harsh on him, I don't even know who they are, but there was you know, it was just a, a, and I'm not even sure what it was about, it might have been about a feature or about some hosting arrangements or something, I don't know, so. But that was, I always kind of felt that Matt took a little un-, like I said, unnecessary grief and heat from people who, back then maybe just didn't, it was, it was just more new and it was more of a novel thing, and so I think that's, I think that was yeah, just kind of a function of the time.#

Interviewer: Do you think that the distinction between Automattic and WordPress was always clear?#

Black: Ah no, I do not. Part of that is just kind of people don't, you know if you don't, if you don't... [inaudible] enunciate the differences early and often, then sometimes people just kind of get a little bit, they, it just kind of gets conflated and sometimes people don't understand the differences. I believe that we've done a better job with that, if, as we've gotten bigger and people have gotten more used to the idea of Automattic and WordPress being two separate entities, and then also with the establishment of the Foundation, I think that it's gotten better, but I, I, you know. I understand all the intricate details and differences, but for someone who, brand new to the web, hear about WordPress and then Automattic, like who's this Automattic company, [inaudible] because WordPress is what they're going to associate with more I think.#

Interviewer: And was it clear to you in the beginning whenever you were thinking about investments, that they were completely separate things?#

Black: Oh sure, yeah.#

Interviewer: Can you tell me how the investment process works?#

Black: Well, for, in general, or for Automattic?#

Interviewer: Well particularly for Automattic.#

Black: Yeah so I mean I think that the, in the beginning, you know Matt, Matt took a very modest, although maybe large at the time, I don't know, modest amount of investment capital, around 1.1 million dollars. And that was invested by Polaris Venture Partners, by myself, and by another group called Radar Partners. And, and so we had a minority stake in the business, and I took a, a board of directors seat, as did someone from Polaris and then there was Matt, and then soon thereafter, oh and also Tony Conrad took an, took a board seat. And then Toni Schneider joined as CEO a couple of months later I think, maybe, maybe three months later. But the investment itself was, you know, 1.1 million into the business of Automattic, funding Automattic and then it would, its monies, [12:00], it took that and start started running the hosting serve-, I don't know what the, hosting service for lack of a better term.#

Interviewer: What was your involvement as an investor and as a member of the board, what did, what did you actually do?#

Black: Well. You know, so much, right, so. So the, you know the role of board member and investor, you know, I always like to say that the number one job of the board of directors is to hire and fire the right CEO. And with Matt's blessing and Matt's desire, we brought on Toni Schneider as, as the CEO in January of 2006. And as you know, just what, 3 months ago, 2 months ago, 3 months ago, we, we, Toni retired as CEO and, and Matt became CEO officially for the business in 2014, so. A nice 8 year run there for, for Toni to kind of help. And I think that was really meant to be that kind of adult supervision if you will, for again lack of a better term, as Automattic was growing from a one person startup behind an open source project into what it's become now, which you know 200 plus person company with you know employees in 25, 26 different countries. And so our job really was I think to kind of, you know the role of the board of directors is more kind of corporate governance in, in nature. Our role as individual advisors to Matt and to Toni might you know have different flavours of, of discussing strategy or people that are being hired or the like. But I think that the, the best thing we did in the beginning was, was we had Toni come on to really be Matt's business partner, and you know allow Matt to focus on the product and, and on the hiring of various folks and also was the perfect stepping stone for Matt to become the eventual CEO of the company that he founded, which I think is the absolute right thing for him to have done.#

Interviewer: Why did you think Toni was the right person?#

Black: Oh Toni, so Toni's a personal friend of mine and I've known him now for about 14 years, so it's obviously very coloured by my, by my experience with him in a, in a whole host of ways. Toni had most recently, on the startup scene he had been the CEO of a company called Oddpost which was acquired by Yahoo, and Yahoo acquired Oddpost to incorporate the Oddpost email service as what eventually became Yahoo mail. And, and then Toni was at Yahoo in charge of developer relations for I think about 18 months or so. And, and Toni has this kind of wonderful [15:00] temperament about him, and I think having been CEO of a startup, that was good, they had a very nice success with Yahoo, he did the Yahoo thing for a small period of time but you know was ready to get back into the startup world. And he and Matt just kind of clicked, culturally, which is really important, obviously. And I think Toni also really just embodies I think the open source spirit, he's originally from Switzerland, had a varied background, worked at startups, had one that didn't work at all, it, it failed, had to shut that down in the '99, 2000 timeframe. Or 2000, 2001 timeframe. And then had success, and I just, I just kind of feel like Toni had a, a variety of back, background experiences that were well suited for him to be able to work with Matt. But I think most importantly he and Matt gelled. And Matt would not allow just anyone to become CEO because the board said oh you should, you should take this person on. So it was I think a really wonderful thing that they, they had such a good, you know a good match.#

Interviewer: What sort of challenges did you guys have running the business alongside the open source project?#

Black: You know I think the challenges might have been a little bit of confusion about hey what's Automattic doing, and I need something from, and you know again Matt's, you know the, one of the creators of the movement, so was he answering something as a .org representative or was it an Automattic representative, and who were these other folks at Automattic who were you know talking about WordPress. There was, there was just kind of I think a little bit of challenge of kind of the lines not being as clearly delineated as what we probably should have. And... But I never felt like, I never felt like the core project was in jeopardy, or that the core mission of Automattic was in jeopardy. I mean I do believe that Matt has done, you know, a very nice job of, of shepherding both of those in the, in these early days to, to where they are today.#

Interviewer: What were your expectations for Automattic at the beginning?#

Black: Well I'm sure that whatever they were that we've exceeded them by now, so. You know, as a seed and early stage investor you certainly plan for a lot of failure to, to creep into, to the investment model, but also hoping that the ones that do work are successful enough to be able to kind of make up for all the others. So Automattic is a, it's a [18:00] wonderful company today. It has exceeded all expectations from the beginning, you know from the '05 timeframe. But I'd say now you know you kind of get to reset expectations every few years and now we have much bigger, you know, kind of goals in mind based upon the success that we have achieved today and, and yet the, the market for, for the WordPress movement and, and for what Automattic is doing is still quite large and very much a much larger business to be had.#

Interviewer: What are your goals for the future?#

Black: Oh I'd like to see Automattic grow to an even larger size, I'd like to see WordPress become an even more dominant platform. You know as we speak today in the first quarter of 2014, or second quarter of 2014, you know it's right around 20 to 21% of all the websites are running on a WordPress instance, and I think that we'd love to see that double over a 5 - 10 year period, which just means you're going to take a larger and larger share of, of the content management systems away form all the home grown systems that, that really don't work in today's world. And I think that, you know Automattic's success is highly linked with the success of WordPress, and we certainly have a belief that both will be more, more readily available, more used by you know millions upon millions of people every month as each month ticks on by.#

Interviewer: Have there been any suggestions that you or other investors have made that Matt or Toni have really pushed back on?#

Black: Yeah I think that in, it tends to be, let me think... When I think about the, the discussions that we've had, there's always been a very good healthy dialogue. The tendency for I think venture capital and institutional investors is to push for, you know more people, more senior people, more people in sales, more people in you know kind of, a particular area. And I, and I don't think that we really fully appreciated the culture of the company that, that Matt and Toni were, were building in those days. And you know, their, their idea of the organisation they wanted to, to build was a highly distributed organisation where the engineer and the engineering skills [21:00] were the predominant and number one factor for you know someone to be hired, at least, certainly in the beginning. We have a, we have a rather low number of people on a percentage basis who, you know, are not engineering in nature and the like. And so, you know, to hire a, just pick a title, VP Sales or Chief Marketing Officer, like, it's actually highly [inaudible] to, to the, to the Automattic culture that has evolved over time. So there might have been discussions where, you know, the board or a particular investor or a particular board member says oh, we should hire a so and so, you know and, and I think, you know, that just was not in keeping with what Automattic and Matt, what Matt wanted to create. And you know, again to his credit he's, he's got a, I feel like today Automattic has a very specific look and feel for the type of company it is, for the culture it has, and it has a very specific success template for someone to be successful there. So, and I, and I, I liked that. Right, I mean you, it's okay to be different, you just need to know that you're different and what, what someone needs to possess in order to be successful in that kind of a different environment. And so I'm, I'm very happy with you know, where we are today.#

Interviewer: Did you think a distributed company could work?#

Black: It certainly kind of goes against all the conventional wisdom and I would say that it has been successful here for Automattic because they, they started out to be a distributed company. Companies that kind of midstream want to make that shift to a distributed company I think have a little bit more difficulty doing that, but I think that Automattic has been this way since day one, so that's, you know been the reason for our success.#

Interviewer: How does Automattic compare to other startups you've invested in?#

Black: Well in what respects, like what were the most interesting kind of comparisons do you think?#

Interviewer: Well I think in terms of goals for the company, you know startups that were aiming for exits, or culture, you know the cultures were different.#

Black: Yeah I mean I feel like, you know, there, there's a fairly common entry point for me, for the firms I've been in, involved with, for all of our investments right. So when we get involved there's 1 - 4 founders, 0 - 5, maybe 0 - 10 employees, that's, that's in the super majority at the time. And Automattic in this case was no different. And your goals in the beginning are frankly you know to kind of get a product launched, to get out there, find some kind of product and market fit which allows for you to scale a sales and marketing organisation, which then allows for you to be in a position to raise additional capital and, and/or be profitable on your own [24:00] merits so that you can actually survive. And then at some point in time, after two or three years, you kind of move from that survival mode to okay, we've got something here and, and where can we go. The, you know, the Automattic, to me I think that inflection point was, I guess that would've been probably after a couple years, summer 2007 and then we kind of did the large financing in January of 2008, which kind of said okay we've got something here and now let's go become a big company. Or start, start our journey on being a you know, a seriously big company. And so to Matt's credit, I think he has always wanted to, to have a very strong independent business, that, you know, he didn't, he wasn't building this to just exit it, that's never been his M.O. And I think frankly, I think the venture capital industry needs, you know, needs more people like Matt who want to build a big company, and who have big goals and big dreams, and you know they take 6 - 8 years, 8 - 10 years at times you know so, we are, what are we here, we're 8 years into the, to the story for Automattic, and the type of, the things that we can do now and the growth that we can, can achieve and the top line revenue that we can earn today would've been almost unthinkable back then, right. I mean we were this one, one or two person startup and we had, you know, a bunch of people on a free hosting service. And so, so I think the, the goals and the dreams for, for Automattic compared to the other investments, they started out similar, and Automattic has established itself as, you know as a clear winner and, and so therefore you have different expectations going forward but it just kind of tends to be more about the, the ability for them to have a more dominant marketshare as an example, versus you know, are they going to survive or not? You know, that's, we're way past that. Which is good.#

Interviewer: What areas of the company have grown the fastest?#

Black: Say again, what?#

Interviewer: What, what areas of the company or products have grown the fastest?#

Black: Well certainly the .com, the site. You know where you can get a, you can get anything from a free blog to a, you know a prosumer small business or even kind of business oriented blog, and even a site now with some of the themes that they have. We've a lot of what we call premium services revenue, which is, it tends to be around additional storage, additional themes, [27:00] functionality which you could do on the web with your particular, with your blog or with your site. You know embedding video and the like, so there's a whole bunch of kind of, again kind of premium services. Akismet for anti-spam, and then there's a small portion of this which has been advertising related, which hasn't really been a huge focus but it's, it's kind of grown to be a nice, you know a nice revenue stream. But the one that has grown the fastest to date has been the site.#

Interviewer: When you received an acquisition offer in 2007, were the investors interested in taking it?#

Black: I can only speak for myself, and our answer really was not... no, we weren't interested, and, and we backed that up in writing by, by putting down a term sheet which became the investment round in early 2008. So oftentimes what we'll do as a, as a large investor is offer an alternative to the sale. And that can oftentimes it allows the founder and entrepreneur to make a comparative decision. I don't, if I don't sell, I'm going to say no to that, but am I saying yes to anything else, and yes to something else might be more money in the company, it might be some money to be, to be used in secondary stock for either founders or other early employees for liquidity, you know so it kind of makes it I think a more level playing field in terms of the decision making process. So we weren't interested, really, and we were willing to, like I said, to put some, put some additional capital behind that, behind that choice.#

Interviewer: I was reading that Matt was interested? I read an article the other day that said that Matt was keen to take the offer, I was wondering how you convinced him not to?#

Black: Well I think he went, I mean look, this would have been 2007, so he would've been, you know, what is that, 21, 22, 23, something like that, so it was, it was certainly a large sum of money for him to be thinking about on a personal basis and so I'm sure in any given 24 hour period he might have at one point in time thought that that was a good thing to do. But he was very thoughtful about what he could do or what he should do. I remember that he came out to Stinson Beach, where we were having an offsite, we had a, you know, couple, three hour discussion about it. Matt is very good about seeking counsel from a lot of different people and then he makes up his own mind. So, he spoke to a lot of folks and took a good long [30:00] hard look at what he wanted to do or what he could do, and opted not to do it obviously. Which is a good thing. Obviously.#

Interviewer: How did you feel when it was proposed that the trademarks went to the Foundation?#

Black: That was something that, so this is the issue of, so the more global issue here is that open source projects have this trademark, and you know the, who own the trademark at the end of the day. And so again we've gotten comfortable with a lot of different, there are a couple or three different models for what to do with that trademark and the WordPress trademark had started out as the, under the ownership of Automattic, with always being the intention that it would be transferred to the WordPress Foundation which was, it took a little longer to get founded for whatever reason but that was always going to be a part of, you know, we knew that was coming. So it wasn't like Matt was proposing something to us where we felt like a significant asset was being lost, it was a significant asset was being transferred to the right third party as we had all kind of thought that it should have been at the end of the day.#

Interviewer: Do you know anything about the process of setting up the Foundation, what that involved?#

Black: No, I mean, other than you know, there's the attorney, and the Foundation has certain kind of rules and, and obviously it has certain things it has to adhere to, so I know that we had always wanted to have a WordPress Foundation, it took a little longer for whatever, for whatever reason and but it's up and running, and you know, I think it's in fine shape.#

Interviewer: Great. Well you've actually, you've answered all my questions so we can stop there.#

Black: Excellent.#

Interviewer: Thank you for taking the time, cheers, bye Phil.#

Black: Thank you very much.#

Interviewer: Bye.#