Heroic Heroku: Snapped Up By Salesforce.com for $212 Million

12/9/10Follow @wroush

In the biggest exit by far for a company emerging from Mountain View’s Y Combinator venture incubator program, application platform provider Heroku is being acquired by San Francisco-based cloud giant Salesforce.com (NYSE: CRM) for a whopping $212 million in cash. The acqusition was announced yesterday during Salesforce.com’s annual Dreamforce conference, and it means Heroku customers like Best Buy, SCVNGR, and FlightCaster will now be paying Salesforce.com for their application hosting.

You can’t spend long talking with a Web 2.0-style startup around San Francisco without hearing Heroku’s name come up. Founded in 2007 by Orion Henry, James Lindenbaum, and Adam Wiggins, the company provides a hosting environment for Web applications written in Ruby. The object-oriented programming language is similar to Python, Perl, and Lisp, but has emerged as the favorite of developers writing social, mobile, collaborative, or real-time Web applications.

Marc Benioff, CEO of Salesforce.com, gives such applications the label “Cloud 2.” In a statement about the acquisition, Benioff said yesterday that “Ruby is the language of Cloud 2, and Heroku is the leading Ruby application platform-as-a-service for Cloud 2 that is fueling this growing community. We think this acquisition will uniquely position salesforce.com as the cornerstone for the next generation of app developers.”

In addition to its 2007 seed money from Y Combinator, Heroku had raised $13 million in venture backing from Redpoint Ventures, Ignition Partners, Baseline Ventures, Harrison Metal Capital, and a variety of individual investors. A $3 million Series A round from Redpoint and Harrison Metal in 2008 was followed by a $10 million Series B round this year that added Baseline and Ignition.

Heroku’s founders and employees will do well in the acquisition, which has already been approved by the startup’s board and shareholders. Salesforce.com said it’s giving stock worth $27 million to Heroku employees, in addition to $10 million to holders of unvested Heroku shares. The return that Y Combinator and Heroku’s other shareholders will realize is unclear, but the $212 million purchase price is at least 15 times the startup’s total capitalization.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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