Thursday, February 26, 2009

$26 Million In, $3 Million Out

This is one of those deals all the VCs involved would probably rather forget: putting $26 million into Tizor Systems of Maynard ($8.3 million as recently as last February), and then selling it to Netezza for $3.1 million in cash. Tizor makes software for securing and auditing the information stored in data centers.

Who was involved in this one? Longworth, Navigator Technology Ventures, Common Angels, and Masthead Venture Partners locally, and Hummer Winblad on the West Coast, according to PEHub.

I wrote earlier this month about the rising number of these fire sales of struggling tech companies. And a while back, I wrote about firms like Masthead and Longworth trying to raise new funds. Neither has.

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Sunday, February 15, 2009

Assessing the M&A Environment in 2009

Today's Globe column is headlined 'Fire sale for struggling start-ups.' It got cut rather drastically for space reasons... so I'm publishing the "director's cut" here, along with this week's video: a chat with i-banker Paul Deninger.

Fire sale for struggling start-ups

Last summer, in the clubby, wood-paneled confines of the Oak Bar at the Copley Plaza Hotel, Chris Cabrera and Mike Torto got together for drinks.

It wasn’t the first time the two chief executives had met – Cabrera’s San Jose company, Xactly Corp., competed directly with Torto’s Lowell-based business, Centive Inc. – but it was the first time they seriously discussed combining the two companies. “We realized that the only deals we were losing were to them, and vice versa,” says Cabrera. Both companies sell Internet-based software for managing the way salespeople are paid. “There seemed like a lot of synergy to bring the two companies together.”

Synergy, perhaps. But when Xactly’s acquisition of Centive was announced last month, there didn’t seem to be much upside for the investors, founders, and employees of the Lowell company: after nearly a dozen years of work building Centive, and more than $92 million in venture capital raised, they handed their company over to Xactly in exchange for stock in the San Jose start-up, which is privately-held and not yet profitable.

Entrepreneurs, team members, and investors work insanely hard under the expectation that they’re creating something of value. The dream is that eventually, the stock market or a deep-pocketed acquirer will repay them for all that work. But right now, public offerings are at a standstill, and the types of acquisitions that have been happening over the past few months don’t look too alluring.

“Investors are looking at their portfolios, and trying to decide which companies can cut costs and survive, who’s going to die, and who they can sell,” says Paul Deninger, vice chairman of the investment banking firm Jeffries & Company. “And sometimes when they sell, they’re happy to just get their bait back, and maybe make a tiny profit.”

Centive isn’t the only recent example of the lackluster market for tech companies. Earlier this month, a bargain-hunting Oracle Corp. snapped up Burlington-based mValent, Inc. for an undisclosed sum. mValent, which helps customers keep track of the way computer systems are configured, had raised more than $26 million from local investors like Polaris Venture Partners, Flybridge Capital Partners, and Charles River Ventures. In January, San Francisco-based Riverbed Technology, Inc. paid $25 million in cash for Mazu Networks of Cambridge, which makes software to help optimize the performance of their technological infrastructure. Only problem is, investors like Waltham-based Matrix Partners, Greylock Partners, and Pilot House Ventures of Boston had poured $47 million into the company.

There’s a possibility that Riverbed may shell out another $22 million for Mazu, if the acquired company hits certain business targets over the coming year. But analyst firm The 451 Group opined that achieving those targets will be “unlikely” given the current economic situation.

Somewhat incredibly, the banker who handled the Mazu transaction dubs it “a huge win.” How’s that? “When you have interested parties at the table in this market, and you have a company that has momentum and is doing well, you sometimes say, ‘Let’s take advantage of this now,’ versus taking the risk that the company will either require further funding, or the company may lose its momentum,” says Ben Howe of America’s Growth Capital in Boston. In other words, the price could get worse in six months, or would-be acquirers could vanish.

Venture capital firms are holding on to their best companies – the top prospects – and wouldn’t consider a low-ball offer. But when it comes companies that seem like black holes for funding, or the time and attention of their VC board members, the attitude is, “Any semi-serious offer will be considered.”

“You’ll see a whole bunch of investors just getting rid of stuff this year,” says Giles McNamee, co-founder of the Boston investment bank McNamee Lawrence & Co.

Liz Cobb founded Centive, then known as Incentive Systems, in 1997 to help companies better calculate the commissions that are paid to sales reps, and inform the sales reps about how well they were performing. She wrote the business plan and raised a first round of $2 million to build the product. Eventually, the company promoted Mike Byers, its chief financial officer, to CEO, and Byers went on a fund-raising tear. The company also started chasing big, million-dollar deals with customers like General Electric, Kinko’s Analog Devices, and Computer Associates. But every deal, Cobb says, was a custom job requiring lots of individual attention.

A big shift happened in 2005 and 2006, when a new CEO, Torto, was brought in. The company sold off its original enterprise software business in order to focus on software-as-a-service, or delivering its sales compensation software over the Internet, which reduced the cost of acquiring customers and also the amount of hand-holding they needed. Torto also recapitalized the company, which wiped out many of the earliest investors and gave a larger stake to those who were willing to stay in the game and keep funding Centive.

Xactly was founded around that era as well, and Centive started bumping into them in the marketplace. “For the past four years,” says Cabrera, “we’ve been battling each other for #1 and #2 in the market.” Xactly also opened up a Boston sales and marketing outpost.

By last year, Torto had nearly nudged Centive into profitability. After the Oak Bar meeting, Torto discussed the potential deal with his board, and the two companies began the due diligence process. “We always figured it would be an all-stock deal,” says Cabrera, “but a lot of time was spent on the delicate subject of valuation.” It was determined that Torto and most of the rest of the Centive management team wouldn’t stay on after the acquisition closed. But Xactly plans to retain the Centive engineering team in Lowell – at least for the foreseeable future, while they combine the best features of the two products.

For their part, even if they don’t have any cash to show for it, Centive’s investors are trying to remain optimistic. They’re now minority shareholders in Xactly, and that company could turn out to be a big winner. Right?

John Gannon is a partner at Polaris Venture Partners in Waltham, which backed Centive from its genesis to its most recent $10 million round, in 2005. “I think there’s a higher likelihood that by putting these two companies together, there will be a really positive exit from an IPO or an acquisition,” Gannon says.

Cobb, Centive’s founder, had split from the company in 2003 after some differences of opinion about its direction. So she wasn’t at the Oak Bar meeting when the two companies began exploring an acquisition. She learned that her old company had been sold a few weeks ago, when a colleague at Makana Solutions, the company she now runs, sent her an e-mail with a link to the announcement. Her founding stock in Centive had been so diluted over the years that she didn’t wind up with a stake in Xactly.

“It’s not fully what I had imagined,” she says.

In 2009, she’s not the only entrepreneur who’ll be feeling that way.

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Monday, September 29, 2008

News Tidbits to Start the Week: Authoria, SpaceClaim, Visible Measures

- Authoria, a SaaS survivor of the dot-com blow-out, is being acquired by a private equity firm for $63.1 million. Waltham-based Authoria sells "talent management solutions"; the buyer is Bedford Funding, which will agree to put in another $8 million in working capital.

Not sure, but this company seems to have undergone a recapitalization at some point...[ Update: they recapped in 2004 ] they raised $75 million in one round back in 2000, but none of those investors are still on the board. The most recent round was $22.5 million last fall. Amazingly, Tod Loofbourrow has stuck it out as the company's CEO for more than a decade.

- General Catalyst portfolio company Visible Measures announced a big deal today to provide video measurement services to all of MTV Networks' properties.

- SpaceClaim founder Mike Payne mentioned to me earlier this month that Chris Randles, formerly CEO at MathSoft, was taking over the CEO reins at the Concord-based maker of computer modeling software. Randles had been serving as an entrepreneur-in-residence at Borealis Ventures, one of the VC firms that has backed SpaceClaim. The official announcement, apparently, happens later this week. Payne had served as CEO until this spring.

3D CAD news reported back in January that there had been some lay-offs at the start-up... and that the COO had departed.

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Thursday, September 4, 2008

Good Things *Can* Happen (Occasionally) When Local Companies Get Bought

Yes, I tend to view the glass as half-empty whenever Massachusetts companies are acquired by out-of-state sugar daddies.

But I acknowledge that sometimes, the companies stick around, grow here, and remain leaders in their sectors.

That seems to be the case with TripAdvisor, as Rob Weisman writes in today's Globe.

From the piece:

    Where other buyers have snatched the brands and shifted management control out of state, starving the local office of resources, Expedia, based in Bellevue, Wash., has provided financial support but allowed TripAdvisor to operate autonomously from Massachusetts - a practice that TripAdvisor, in turn, has extended to its own acquisitions, such as VirtualTourist, Cruise Critic, SmarterTravel, and SeatGuru.

    TripAdvisor makes the bulk of its money through advertising from travel destinations and booking sites such as Expedia, as well as its rivals Orbitz and Travelocity, to which visitors can link from TripAdvisor's site. The company posted profits of $129 million on $260 million in revenue for the 12 months ended June 30, parent Expedia reported.

    "We're absolutely committed to growing TripAdvisor as fast as we can and, frankly, to throwing as much capital at TripAdvisor as we can," said Dara Khosrowshahi, chief executive of Expedia. "Very early on, when we invested in the company, they beat everything they told us they were going to do, in terms of finance and operating goals."

Here's an interview I did about a year ago with TripAdvisor co-founder Stephen Kaufer:

And last month, I bumped into Langley Steinert, the other co-founder of TripAdvisor. He's now running the automotive community site, based in Cambridge. And Kaufer serves on his board.

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Sunday, August 24, 2008

Big Tech Companies in New England: An Impossible Dream?

Last Sunday's column focuses (again) on New England's penchant for selling start-ups short rather than building what I call "pillar companies."

From the column:

    Maybe I'm a glass-half-empty sort. Maybe I refuse to acknowledge the reality of the financial markets, and the need for entrepreneurs to deliver a return for their investors within a reasonable time.

    But I can't help feeling that, whenever a New England company is sold to an out-of-state acquirer for big bucks, we've missed another chance to build a "pillar" company of our own.

    When Dell Inc. pays $1.4 billion in cash for New Hampshire's EqualLogic Inc. this year after the storage start-up had filed to go public, it feels as if we've missed the opportunity to cultivate another EMC Corp. in our backyard. When VeriSign Inc. buys m-Qube Inc., one of the pioneers of content delivery to cellphones, for $250 million, that's a potentially significant anchor tenant we've lost for the mobile software com munity here. When Microsoft Corp. buys Softricity Inc., that's a pioneer in application virtualization - delivering software over a network connection - no longer seen as a leading player in the field, and headquartered right here in Boston to boot.

The column includes a chart of some recent acquisitions by out-of-state buyers, and also a video from the recent Y Combinator "Demo Day," where fledgling start-ups show their stuff.

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Thursday, July 31, 2008

The Forrester/Jupiter Rivalry Ends

Making pronouncements about the potential of the Internet was still a growth industry back in 1997. Back then, Forrester Research and Jupiter Research were cut-throat rivals. Forrester was even basing part of its analysts' pay packages on how many times they were quoted in the press. From a Wired piece I wrote about the two companies:

    ... "A very critical way we market is through the media," says Forrester president George F. Colony, a charismatic 44-year-old who founded the company in 1983. "Quotes help us sell."

    No one understands that better than Adam Schoenfeld, a VP at Jupiter Communications in Manhattan. The scrappy, fast-growing Jupiter is Forrester's closest competitor in the consumer research market, with a projected $10 million in annual revenue, and Schoenfeld is Jupiter's one-man quote-spewing jihad. He averages 1.25 mentions a month in the Times - more than any one of the competition's pundits. "I keep my eye on a couple of my favorite Forrester analysts," the 33-year-old Schoenfeld acknowledges with a grin, "just to make sure I'm getting quoted more than them."

(Interestingly, Shoenfeld seems to have become a professional poker player since I last spoke to him.)

Now, Forrester, which has long since eclipsed its rival, is buying Jupiter for $23 million.

Here's the official press release.

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Wednesday, April 23, 2008

Wow: Glaxo Pays an 84 Percent Premium for Sirtris Pharma

This one will be an HBS case study before long: how do you take some very early academic research from Harvard and generate $720 million of value in just four years?

GlaxoSmithKline is paying that amount, in cash, for Cambridge's Sirtris Pharmaceuticals, which develops drugs based on the chemical resveratrol. Resveratrol is an ingredient found in red wine, and it may help fight diseases related to aging. Even more fantastically, it seems to extend lifespan in mice.

Sirtris has no drugs on the market and no revenues. It was founded in 2004, and went public last year. Its most advanced drug candidate, SRT501, aims to treat diabetes, but it just completed Phase 1b trials, the results of which were announced in January.

The biggest question about this deal -- not addressed in any of the stories -- is, how long are Westphal and his key team members required to stick around after this acquisition? I wonder whether they'll have the desire, or the incentives, to stick around long enough to transform the company's early promise, which was clearly attractive to Glaxo, into actual drugs.

Here's the NY Times coverage ... and the story from today's Boston Globe. Forbes notes that the deal is part of a trend of foreign pharma companies buying US firms because of the weakness of the dollar. Bloomberg ran an earlier piece on the company, last November, 'Sirtris may fight diseases of age.' Xconomy has a Q&A with Sirtris exec Michelle Dipp, who handles corporate development and PR for the company.

I wrote about Sirtris and one of its predecessors, Elixir Pharmaceuticals, last November in the Globe.

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Friday, April 11, 2008

Understanding Yesterday's Millennium Pharma Deal

The acquisition yesterday of Millennium Pharmaceuticals by a Japanese firm for $8.8 billion is a big deal -- the biggest ever in the Massachusetts biotech industry.

The Globe's Jeff Krasner has some really solid analysis of Millennium's saga, which began with a lot of lofty predictions about the power of genomic information. Krasner writes:

    Nobody did more to raise those unrealistic expectations than Mark J. Levin, Millennium's cofounder and longtime chief executive. In December 2001, he told Technology Review that Millennium would use genomics to become wildly successful. He said: "Over the next five to 10 years, our goal is to become a company that's leading the world in personalized medicines, a company that is leading the world in productivity, a company with a value of over $100 billion, a company that has five to 10 products on the market that are making a big difference in people's lives, a company with the strongest pipeline in the entire industry."

    But beyond building lavish headquarters and striking licensing deals worth hundreds of millions of dollars to Millennium, the company didn't produce. Its two cancer-fighting drugs, Campath and Velcade, came about the old-fashioned way: Millennium bought the smaller companies that developed the drugs. Millennium has since sold its rights to Campath to Genzyme Corp.

In a column from last August, I talked about Millennium as a font of big picture, deal-making CEOs for smaller biotechs, including Alnylam, Infinity, and Tempo.

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Tuesday, February 12, 2008

Behind Yahoo's $160M Acquisition of Maven: Maven CEO and Board Member Discuss

What do you ask for in February 2008, when you sell a company to Yahoo?

Cash, baby.

Yahoo paid $160 million for Cambridge-based Maven Networks -- almost all of it in greenbacks, not Yahoo stock. (Here's the AP story...and the official press release.)

"There's no way to arbitrage Yahoo's stock price when Microsoft may be buying them, or may not be buying them," says Woody Benson, managing general partner at Prism VentureWorks, which invested in Maven's most recent round of financing. (Yahoo rebuffed Microsoft's $44 billion purchase attempt on Saturday.)

Benson told me this morning that there was more than one company interested in owning Maven, but acknowledged that he was a bit anxious about whether the deal would go ahead once Microsoft started to make a run at Yahoo: "Anxious would be one word for it," he said.

Benson said that Maven and Yahoo signed a letter of intent around Thanksgiving, and that due diligence proceeded until Microsoft made its unsolicited offer to acquire Yahoo on February 1st. Benson says that the Microsoft offer didn't necessarily cause Yahoo execs to slow down or speed up the final negotiations in the Maven deal; I'd earlier speculated that it could hang in the air for a while. The final papers were signed on Sunday.

"There's a reason why they're buying us," Maven CEO Hilmi Ozquc said, when I suggested that Yahoo (and Microsoft) had missed the boat on the online video explosion. "The tech innovation has been happening at start-ups to date. But as the giants jump in, the fastest way to get there is through acquisition."

Ozguc and Benson both say that Yahoo's big advertising salesforce will help Maven vault ahead of other video players, like Brightcove (and perhaps even put it on an even footing with YouTube, which has been slow to integrate ads with videos.)

My last question for Ozguc was whether he'd be surprised if Microsoft now bought Brightcove: "I would not be surprised," he said. "But if they're going to buy Yahoo and get Maven for free, why?"

Update: Will Richmond has a longer Q&A with Ozguc on his site, Videonuze.

The NY Times Bits blog offers a critical take on the purchase...and here's the Globe coverage of the deal.

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Friday, February 1, 2008

Ray Ozzie's role in Microsoft's Yahoo offer

Bloomberg has a good piece explaining the role Ray Ozzie is playing in Microsoft's bid for Yahoo.

Ozzie, you'll remember, was running Groove Networks up in Beverly until 2005, when Microsoft bought him (whoops, his company) and made him one of its CTOs. He now fills Bill Gates' shoes as Microsoft's chief software architect.

From Crayton Harrison's piece:

    Ozzie, 52, plans to use the Internet to complement Microsoft's software for consumers and businesses, marrying programs with information available online. When Microsoft held a video conference for employees today about the Yahoo bid, it was Ozzie who explained how the companies' technologies would fit together, spokesman Bill Cox said.

    ``He really understands technology and where it's going,'' said Ken Allen, a portfolio manager at T. Rowe Price Associates Inc. in Baltimore, the fifth-biggest institutional holder of Microsoft shares.

Ozzie blogs (he was one of the first Boston tech execs to do so), but not very regularly.

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Thursday, January 31, 2008

Will Yahoo buy Maven?

(This is in danger of turning into the all-General-Catalyst-all-the-time blog...)

But the buzz yesterday was that Yahoo was on the verge of a deal to buy Cambridge's Maven Networks for about $150 million.

Wonder how that deal will be affected by Microsoft's unsolicited offer to buy Yahoo for $44 billion?

I suspect if the ink isn't yet dry on the Maven acquisition, CEO Hilmi Ozguc and his investors (which include GC, Prism VentureWorks, and Accel) may be biting their nails for a little while...

(A few months back, I wrote about the rivalry between Maven and Brightcove, Cambridge's two video delivery start-ups.)

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Monday, December 17, 2007

Sunday's Globe column: Building new pillars in the Bay State

I'm saying it: we need a new generation of pillar companies here in Massachusetts, and the wider New England region.

Sunday's Globe column explores what we need to do to start thinking bigger. From the column:

    I understand the argument that big acquisitions, like September's $430 million deal to sell Waltham-based Adnexus Therapeutics to Bristol Myers-Squibb Co., return profits to venture capitalists they can in turn invest in new start-ups and allow newly wealthy entrepreneurs to go off and try something else - maybe even a riskier idea.

    But we also need to build the next generation of "pillar companies" here - companies like EMC Corp., Genzyme Corp., Boston Scientific Corp., Hologic Inc., and Nuance Communications Inc.

    These companies employ hundreds or thousands of people. They're acquirers, not acquirees. They lead industries, set the agenda, and attract the attention of media and Wall Street analysts. Smaller companies cluster around them.

    Right now, acknowledges Steve O'Leary, an investment banker with Jeffries Broadview, New England "is a net sellers market, as opposed to a net buyers market." O'Leary, who earns a living by selling tech companies, says, "I'd like to see more of a food chain, from the big companies on down."

I wrote about this topic back in January, as well, and moderated a salon called 'Thinking Big' late in November.

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Monday, November 5, 2007

Did EMC Drop Out of the Bidding for EqualLogic?

Dell is paying $1.4 billion in cash for Nashua, NH-based EqualLogic. Company is run by Lotus alum Don Bulens, and backed by Charles River Ventures, Sigma Partners, Focus Ventures, and TD Capital. This is a big exit for all involved, since only about $52 million had been invested in EqualLogic. (Earlier this year, Bulens had touted the company as an IPO prospect.)

I had lunch today with a storage industry entrepreneur who suggested that EMC had likely been in the bidding, but dropped out before the price reached $1.4 billion. He also speculated that this could mean the end of EMC's partnership with Dell; Dell's reseller arrangement with EMC accounts for about 16 percent of EMC's storage revenue. The official word from EMC is that there will be no changes to the Dell partnerhship.

Goldman Sachs just downgraded EMC from a "Buy" to "Neutral."

EMC chief executive Joe Tucci gave this interview in October in which he vowed to catch up to the competition by early 2008. Which is coming soon.

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Tuesday, October 2, 2007

Adobe, Google Grab Local Start-Ups

Two small Boston-area start-ups have been adopted by California parents: Adobe and Google.

Zingku runs a mobile social networking service; originally known as Bloobird Studio and funded by Flagship Ventures, the company's founders include Martin Fahey (formerly CEO at WebHire), Mussie Shore, and Sami Shalabi. (All three are Lotus Development Corp. alums.) Google acquired Zingku late last month, but didn't announce the purchase price.

From the PC World story:

    Zingku aims to make it easier for people to share photos, send invitations or conduct polls among friends via mobile phone. It also provides a way for businesses to send "mobile flyers" to customers advertising products and services.

    Zingku was started in 2005 and the service has been in testing with a limited number of users in the U.S. New account sign-ups have been frozen following Google's acquisition, according to Zingku's Web site. Existing accounts will be transferred to Google unless they are cancelled by Oct. 4.

    Detailed terms of the acquisition weren't provided and Google didn't return calls seeking comment. The company has confirmed that it bought "certain assets and technology of Zingku," according to the Google Operating System blog, which first reported the deal, and is not owned by Google.

And Waltham-based Virtual Ubiquity has been acquired by Adobe, also for an undisclosed amount. Virtual Ubiquity makes the Web-based word processor Buzzword. The company received some funding from Adobe's venture capital arm last year. This sets Adobe up to compete with Google in the battle for users of Web-based writing tools. (Tim O'Reilly says that Buzzword is superior to Google Docs.) Virtual Ubiquity's CEO was another Lotus alum, Rick Treitman. Here's the announcement from the company's blog.

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