Where is the EXIT route? My thoughts on Nimble Storage & PHDvirtual

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I’m a technologist by nature but the way companies grow and evolve has always been a second interest in our industry. Off course it’s easy to be interested in that part knowing how much and how fast these things change. My first public thoughts on this were my Vendor Acquisition and Partnerships posts of 2010 and 2011 where I focussed on the historical relationships  of where products at Big Vendors (HP/DELL/EMC/…). It’s been 2 years since I did an update and it would make sense doing it again. Some recent acquisitions like Whiptail (Cisco) and XtremIO (EMC) definitely deserve their spot on that chart.
In this post I focus on some reasons for a company EXIT and more specifically the recent Nimble Storage IPO and PHDvirtual acquisition by Unitrends.

Trees through forests

But nor HP or DELL for example have bought anything really significant lately and they don’t seem to be eager to do so in the near future. And there is till A LOT out there in the wild. There are dozens of smaller startups with interesting technologies. It’s not that any one of them makes bad technology. I’d say that 90% of the current storage startups have technology that deserves a spot in the market. I’m not saying it’s well designed, and I am specifically not saying the companies build around it will work in the long run.

Where’s the EXIT route?

Starting a new company by it’s nature means you are a business man! Otherwise you’d be going with your ideas to your CTO and just switch companies if he/she didn’t listen. From a business man’s point of view that technology idea needs to bring in some cash. So here are the three options:

  • Selling to the highest bidder only comes to mind when there is someone to make an offer that you are willing to take. Most small startups hope for this mostly because the problem they are solving appears to be a “single feature solution”.
  • Going Public is an option a lot of those smaller startups are now alluding to. Two that jump to mind here recently are Violin Memory and FusionIO. Both haven’t done pretty well this far … The reasons IMO here are that no-one was buying FusionIO for the price they wanted and no-one needs Violin Memory anymore. And none of them would have made it as an independent company in the long run anyhow. This is for me the biggest danger all of those small startups are facing right now! Going IPO for the wrong reason; cashing in for the investors before it gets worse.
  • Growing independently (no exit!) is the dream of every startup founder! Actually IPO and independent are the same result from a product/customer perspective, the only difference is that in the independent company it’s still all your own money. 

Nimble Storage IPO

A lot about the IPO as such has already been said by some friends in the industry. I suggest you read the posts from Howard Marks, Chris Evans and Chris Mellor all linked below. They have way more experience in the financial aspects of an IPO than I do.

What I do know is that there is a significant difference between an IPO as an exit or an IPO for growth. Nimble Storage definitely is a company that has shown explosive growth. From all the small storage startups Nimble Storage made the most mature product, sold it to the most customers and has a clear mid to long-term story. The scale-out announcement they did a few weeks ago clearly gave them at least an extra 3 years head start for their current target audience. 

I look at Nimble as I looked at EqualLogic 3 years ago; from an economics perspective in the SMB market it’s very hard arguing against this. I think this logic has been appreciated by the financial market on opening day (raised $168mln).
Congrats to Nimble and good luck!

PHDvirtual acquisition

Waaw, while I am still chewing on my text and see everyone else publishing their posts on the Nimble Storage IPO, Unitrends just acquired PHDvirtual. PHDvirtual and Unitrends both play in the dataprotection (backup) SMB market. Off course I cannot talk about these two without mentioning Veeam. And that might be one of the reasons this happened! Here are a few of my (very biased) observations:

  • PHD plays in the exact same market as Veeam, with almost a 100% copy of the features
  • PHD had +6500 customers in 5 years, Veeam had +80.000 in the same time-lapse with a far more mature product
  • PHD has 100-150 employees while Veeam passed the +1000 begin 2013 which gives them a very global footprint

Unitrends plays in the same market as Veeam as well but with a broader product than PHD and from what I hear from all sides is that it is a very decent product. But they are pretty small as well (250 employees). Now why would Unitrends buy PHDvirtual then? Normally this would be considered as a hostile takeover if not for this: Insight Venture Capitals whom already had investments in PHD invested a growth equitiy in Unitrends. Now if you own two companies in the same market and the third player is already playing with the big boys now (Symantec, Commvault, EMC), the last thing you need is competing with your own money. So here is what really happened today (in my very biased opinion):

  • Unitrends added 6.500 customers overnight
  • Unitrends acquired some historical IP that is focussed on one of their bigger competitors 
  • A smaller player in the market has been eliminated which will clear customer confusion
  • Insight Venture Capital exited one of it’s companies that was going nowhere anyhow. After all, PHD had to go for $2mln in debt funding earlier this year after a previous equity funding of $2mln by Insight. Some may call that a “sign on the wall”.
Footnote: Insight had a minor share in Veeam as well. That was not part of a funding as Veeam is completely self-funded. The involvement has also been announced as a growth plan project. I guess that involvement could change now. If I was Ratmir (CEO & owner Veeam) I’d kick Insight straight in the nuts! They don’t need these guys at all 🙂


P.S.: I am by no means a financial expert! If you are yourself you’d probably have noticed. By all means enrich my knowledge with your comments if you are.
Disclaimer: Nimble Storage was a sponsor of Storage Field Day 4 of which I was an attendee. The attendees were not personally compensated other than travel and logistics nor were we obliged to write anything about it.

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