VMware IPO’s tomorrow and is estimated to be oversubscribed by as much as 25x the number of shares available according to MorningNotes (via TheStreet.com).

The 33M share IPO at $29 will bring in $957M, and that’s only for an 11% stake in VMware. EMC, who purchased VMware for $635M in 2004, will retain the majority of the remainder. I don’t know if the Intel & Cisco investments in VMware are from the 11% or the 89%. In any case, at $29/share, the market is valuing VMware at $8.7B. (Just fyi, this would represent a 100%+ annual rate of return for EMC over the past 3.5 years). Considering the anticipation behind this IPO, it wouldn’t be a surprise to see the value increase well into the $10B range before this week is up.

Now here’s the fun facts:
– Founded in 1998
– Revenue increased 92% YTY in two most recent quarters
– On track to break $1B in revenue for the fiscal year (a little less than 9 years from founding)

To keep things in perspective, Red Hat was founded in 1994 and is expected to break $1B somewhere between 2010 and 2015 (based on High & Low revenue estimates from Financial Analysts). These two dates represent 16 & 21 years from the founding of Red Hat to hitting $1B in revenue. Yes, I understand that OSS drives revenues on a different timeline than Traditional software. But I doubt this matters much to an investor or a VC who is solely evaluating returns in the shortest period of time. Also, Red Hat’s valuation/market cap is $4.21B today and was a maximum of $6.1B in the past.

The VMware valuation of $8.7B+ seems out of this world to me, but I hadn’t realized that they were on track to hit $1B in revenues. It’ll be interesting to see how VMware reacts to OSS virtualization alternatives. Investors don’t seem too worried. But what do they know? :-)

In any case, the excitement around VMware’s IPO indicates that the Traditional software market is alive, healthy and not going away anytime soon.