Category Archives: Saas

Raise Now & Get Back to Work

There’s a lot of hand-wringing these days about late-stage private venture valuations, crossover investor frenzy hangover and the downstream impact on the Tech IPO market.

As well as the effect still further down the river: on mid-stage follow-on valuations.
You’ve read the data.

More than 40% of 2015 Tech IPOs priced at or below the valuation of their most recent private round.

As of last month, less than 14% of the year’s IPOs involved Tech companies.

Over the last several weeks, we’ve discussed this at each BoD meeting I’ve been part of.

Things are going well…should we raise a follow-on now, given what’s going on, or should we wait until later when our metrics will be even better?

Should we risk the slim IPO window in a vibrating market…or wait until the coast is clear?

At least in private venture markets, the answer — if not the coast — is usually crystal clear.

Raise now.

Valuation compression has already started for Series B & C rounds.  Deal supply is way up.

Just as the bar for Series  A business progress looks like the Series B bar from two years ago, the yardstick for follow-on rounds is getting longer.

More deals in the market empower new investors to be more demanding.

And require that BoDs and management be more pragmatic.

By anyone’s measure, the macro climate of the world we live & work can be viewed as unstable — put mildly.

If there is capital on the table for an emerging company — a private company — it should be taken off the table.

We all love steep, up-and-to-the-right charts.

At the same time, the Defense would like to introduce Exhibit A.

The widely-quoted example in the book The Hard Thing About Hard Things is a putt worth following.

LoudCloud had few financing options at the time of their IPO.  They were in the middle of a pivot of their business towards an encouraging vision, but had less-than-definitive proof points to assure the world that they would be successful.

Like Pure Storage a few months ago & Square this week, they went public in 2002 to much hand-wringing, lower-than-expected valuation and initial market reception.  As a matter of fact, less than 50% of what they had hoped for. The Smart Guys dubbed it “The IPO from Hell”.

But management & their BoD believed in their strategy, they needed capital, and they got the IPO completed.

They got the capital needed for growth and set the table for an eventual 4x multiple from that valuation, upon its acquisition by HP 4 1/2 years later.

Critics and competitors called the raise an act of desperation.

They spread doubt on the street that public investors would ever see a return.

But sometimes a raise just needs to be put away.

When you need to grow your company to get to the next milestone, to get to planing speed & to scale it to prominence — you need capital.

Cash is oxygen.

winding-road

Everybody Wants to Go to Heaven, But Nobody Wants to Die.

I’m talking to both management & existing investors.

If the company has real chops — if it is worth fighting for — then get on the road to get to Heaven.

If management believes in their business, take the money & get back to work. Take the “W” and get on the bus. Live for the bigger goal.

Everybody.

A company’s long-term valuation trajectory has everything to do with results. It has little to do with short-term market perception.

A financing is not an exit.  It’s a point along the road in a journey as partners.

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Why We Partnered with ClearSky Data

We’re stoked to announce our new investment partnership with ClearSky Data.

ClearSky Data

We’re leading an investment round of  $27M, joined by strategic investment partner Akamai Technologies, alongside existing investors General Catalyst and Highland Capital.

I spend most of my time partnering with and looking at companies focused on the Cloud.  SaaS applications, Cloud Infrastructure and Data Science.

So, I can tell you that we’ve entered Generation 2 of the Cloud.  And with it, the next generation of enterprise infrastructure.

Hybrid Cloud architectures enable previously hard-to-solve challenges to be solvable.

They enable leverage of the economy, scalability  and agility of public clouds with opportunities to address performance, resiliency and security limitations.  Limitations which have held back The Public Cloud as true Enterprise-grade foundational infrastructure.

ClearSky Data is a company that exploits Hybrid Cloud possibilities to solve a huge customer problem.

That big problem has resulted in a huge addressable market.

A front-burner challenge for enterprises large and small: reducing the costs & increasing the agility of primary storage.

  1. The Solution:

ClearSky is building a global storage network.  It’s a managed service delivery model for enterprise storage, combining the performance and availability of primary storage with the economics and scalability of the cloud.

Their’s is an innovative approach to primary storage which to help enterprises become more agile and take full advantage of hybrid cloud adoption.

To the point, ClearSky’s cloud-based global network frees customers from legacy storage systems that are expensive, complex to manage, and rigid.

ClearSky solves three major problems for IT of enterprises large and small::

  • Data footprints are huge & keep growing.
  • Businesses crave agility but today’s storage can’t deliver it.
  • The cloud is an incredible storage resource, but latency gets in the way.

These problems cause enterprise IT to spend a ton of time & money to manage their data.

They over-provision storage to play it safe.  They pay for excess capacity and performance that never gets fully utilized. They incur hard-to-plan-for people costs to manage complex, heterogeneous data storage pools that have to be continually upgraded and expanded.

“Hot” data is mission-critical data that a business runs on in real-time and accesses on a daily basis  — which represents only about 5-10% of typical workloads. It needs to be kept close at hand for ready use.

But enterprises  keep lots of “cold” data in traditional storage arrays, in order to play it safe and esure against performance and latency issues. Very expensive. Very inefficient.

ClearSky alleviates storage cost &  complexities — reducing the data center footprint required for traditional storage.

The company has the potential to completely transform the storage market dynamic.

People and budgets previously focused on buying and managing primary storage now have the ability to leverage the cloud for an agile, on-demand,  secure storage model.

  1. The Significance:

The major technology challenge of the last generation of enterprise infrastructure was how to deliver content on demand.

In the first generation of the web, our portfolio company Akamai, solved the content delivery bottleneck problem,

In this 2nd Generation of the Cloud, and the current generation of the enterprise, storage is the current bottleneck.

Storage is the bottleneck for the contemporary enterprise. The basic model for storing data hasn’t changed in decades. In today’s business environment, the costs, complexity and rigidity of this legacy approach (and the need to update storage capacity every 18 to 36 months) are intolerable.

In today’s enterprise, workloads can be hosted anywhere –- on-premise, in public and private clouds or in software-as-a-service (SaaS) environments.  And data needs the ability to move quickly between locations.

Storage needs to evolve to meet this need.

Cloud gateways can’t address the performance, latency, security & availability requirements of enterprise production workloads. They deliver a front-end cache that connects to the cloud over the internet.  Their architectures make it impossible to achieve the high level of requirements that enterprises demand.

ClearSky provides this needed level of performance through its use of PoPs, its global high-speed network, and its Smart Tiered CachingTM technology.

ClearSky is the only company offering an enterprise-grade alternative to legacy storage.

It can be the answer to the enterprise data mobility problem.  A managed service for storage.

  1. The Timing:

Now is the right time for a solution like this to enter the enterprise storage landscape. The service’s delivery model, particularly its metro-based PoPs, gives ClearSky the opportunity to alleviate chronic storage headaches in a more immediate way than any other company has attempted to this point.

Great idea.  Why hasn’t someone else done this before, you might ask?

It’s really hard to do.  There’s a ton of storage chops, hybrid cloud architectural chops and algorithm magic working to make this happen.

Traditional, legacy storage vendor are not likely to be interested in anything near this approach anytime soon.

It’s an anathema to their hardware-based technology and core business models.

This is a unique time in the storage industry where the large players are merging, going private, shutting down business units and struggling to respond to the huge market forces. It’s a great time for a startup like ClearSky to offer a breakthrough solution to a long-standing set of infrastructure challenges.

  1. The Technology:

ClearSky software helps to cache data into hot, warm and cold layers. It’s algorithms  manage each piece of data with information about it, including the performance it demands.

It puts cold data in the public cloud.  Hot data on premise. Warm data in metro PoPs which enable on-prem performance & resiliency without the costs.

It provides customers with more management and storage for less money. It acts like a local storage array in terms of performance and availability, but leverages  the scalability and economics of the cloud.

This is web-delivered software.  No hardware or software installs or updates needed. A dashboard enables views of capacity, availability, performance & latency.  Account, customer service & billing information are also viewed.  SLAs guarantee high performance, end-to-end security and high availability.

Security is enterprise-grade.  Encryption, key management technologies and policies ensure compliance with industry and government standards.  Multiple mechanisms and layers ensure integrity and separations of customer data in transit an at rest. It closely monitors and protects three distinct data domains — customer data, metadata (indexing and describing that customer data) configuration/management data.

An on-demand network.  Think SaaS for storage.

  1. The People:

CEO and Co-founder Ellen Rubin is one of those people I’ve wanted to work with for years.  I’ve followed her career from her Netezza days, where she created market acceptance of a new technology category; the data warehouse appliance. She led market strategy, product marketing, complementary technology relationships and marketing communications through their IPO, which led to their eventual acquisition by IBM for $1.8B. She then co-founded and did much the same for cloud enablement company Cloudswitch, through their acquisition by Verizon, where she was responsible for strategy & roadmap for all cloud offerings. A great track record in leading strategy, market positioning and go-to-market for companies in hyper-growth mode.

CTO & Co-founder Lazarus Vekiarides is another one of those people. I’ve heard my good friend Don Bulens rave about Laz’ contributions to Equallogic, which  was acquired by Dell for $1.4B.  He’s spent 20 years in technical and leadership roles — also with companies like 3Com & Bayan Systems — delivering transcendent technologies to market.  After Equallogic’s acquisition,  he was executive director of software engineering for Dell’s Storage Engineering group.

Behind them is a team full of rock star architects, developers and company-builders.  Supported by a Board which includes Jit Saxena (Founder of Netezza), Paula Long (co-Founder of Equallogic), as well as David Orfao (General Catalyst) anSean Dalton (Highland capital.

Having Akamai (Andy Champagne – VP Product & Technology for their Enterprise Cloud Group) will be great help as well, as they share our collective belief that ClearSky’s has the right model to disrupt the enterprise storage industry, and will partner with us to meet global customer needs.

Nobody else has created an architecture that approaches ClearSky’s global storage network.

The team’s competition is the status quo.  Expensive, complex, multi-vendor, multi-architectured  storage pools with legacy hardware-based architectures which have to be constantly maintained, upgraded and expanded.

Incredibly-expensive TCO solutions.  Solutions  of from traditional storage arrays .  From companies like Dell/EMC, NetApp and Hitachi.

This market is being completely transformed by the cloud and by new service models.

We’re now in the 2nd Generation of the Cloud.

The next generation of enterprise infrastructure.

And perhaps the next generation of data management and storage.

Phytel, IBM & Population Health Management

population summary

Earlier this afternoon, IBM announced their intention to acquire @polarisvc portfolio company Phytel, the leader in Provider-led Populations Health management.

Phytel provides health care organizations with population health technology to deliver timely, coordinated care to their patients. The company’s registry uses evidence-based chronic and preventive care protocols to identify and notify patients due for care, while tracking compliance and measuring quality and financial results.

The company has built themselves to become “Best in KLAS” — according to that vendor research organization — the #1 Population Health SaaS company.

It’s been a privilege to have been their Board partner for the past four years.

The acquisition, once completed, will bolster IBM’s efforts to apply advanced analytics and cognitive computing to help primary care providers, large hospital systems and physician networks improve healthcare quality and effect healthier patient outcomes. The acquisition is subject to regulatory review and is anticipated to close later this year.

This announcement is significant for a number of reasons:

  • First and foremost, a very important company was built by CEO Steve Schelhammer and his team.  Steve is an incredible partner and Polaris repeat entrepreneur.  All of the accolades Steve and his team has and will receive are well-deserved.
  • The acquisition is testament to the convergence of robust Population Health Data, Actionable Analytics and thoughtfully-designed workflow-centric SaaS Healthcare solutions.  Improving patient outcomes, maximizing care team effectiveness and managing risk of Providers and Payors alike have all been enabled by the marriage of data, technology, and domain expertise.
  • In the world of payment reform, Phytel’s data registry of patients and physicians is central to the benchmarking of both outcomes and clinical performance.  Phytel solutions in the areas of Patient Outreach, Population Analytics, Care Management, Patient Engagement and Care Transition have been both transformative as well as integral to a healthcare climate changing at breakneck speed.

Analytics which enable Value-Based Care.

Phytel will become a key part of IBM Watson Health, a dedicated business unit built around establishing Watson Health Cloud, also launched today.  Designed to provide a secure, open platform for physicians, researchers, insurers and companies focused on health and wellness solutions, the HIPAA-enabled Cloud will enable secure access to individualized insights.  And a more complete picture of the many factors that can affect people’s health.

IBM’s announcement at HIMSS today brings with it incredibly-exciting potential.

Phytel’s exceptional customer franchise of Health Care Organizations, its data assets and its industry expertise make it an extraordinary complement to the cognitive and predictive possibilities of IBM’s Watson Analytics and Cloud strategies.

We couldn’t be more pleased for the customers of Phytel and IBM. For Patients and Providers. And for Phytel’s employees and its leadership.

Burning Bridges

A bit of a warning here.  A rant follows.

I had an experience the other day with a young investor from another firm and it got me thinking.

More directly, it got me recalling time spent on the other side of the table, raising capital from Silicon Valley VCs during the height of the bubble in 1998.

It got me remembering why I had a dim view of most venture capitalists at the time.

You might have heard that things then were, well, comparatively pretty easy.  And they were.

Easy for teams like the ones I led to raise capital at outrageous valuations. With important technology, good market timing, a real business model, a great team and business traction, the sky was the limit.

It was easy for VCs to select opportunities to invest in from a deep inventory of disruptive opportunities.

It was easy for VCs to be self-absorbed in their success.

And to forget about their real purpose as VCs.

The real purpose of a VC is to help special people build special companies. To help create value for all shareholders.  To help teams to delight their customers. To help develop talent. To build effective, long-lasting partnerships which help entrepreneurs and the venture firm alike.   And to generate strong investment returns to Limited Partners.

Forgetting their real purpose made it easy for investors back then to confuse their part in a start-up’s success.

It was easy to demand teams to “get big quick” (I still hate that term) without thoughtful business guidance.  And it was easy to be super-arrogant.

Push, slash, burn, move up, move on.

bridges

This was true of some of the veteran investors who made their bones when the going was good.  Certainly not all.  But enough. They were not shy about telling and directing management — as opposed to coaching and partnering.

But it was also agonizingly true of many of the junior investors.  The ones who might have sat in the back of the board room.  The ones who hadn’t yet experienced success as an entrepreneur, operator nor investor.  Certainly not enough to substantiate the inflated sense of self  that was displayed.

Neither personal success nor failure gave their advice context. But they barked out opinions and directives in support of their agendas, nonetheless.

That was then.

As a board member years later, one thing that I pride myself is being grounded in the knowledge of how hard it is to do what the folks we invest in and partner with do for a living.

Creating, building, leading and developing is incredibly fun.

But it’s seldom “up and to the right”.

It’s hard to solve problems, to lead the way and build both exceptional value and team culture.

Lots of peaks and valleys to the journey. Lots of amplitude in the trend line of growth.

It’s hard to be an entrepreneur and a company’s leader.

I appreciate the fact that, more often than not, the people sitting across the table are simply smarter and more talented than I am. In fact, given my modest intellect, it’s a pretty easy grok for me.

The people across the table are visionaries, creators, artists and executors.

Investor partners who do our job correctly are coaches & mentors.  We impart street wisdom and a guiding voice to help others avoid the roadblocks we experienced.

We help them to replicate the principles & practices that enabled us to experience the successes we enjoyed. Whether as operators, board members and/or investors.

That shared philosophy is why I selected my Polaris partners years ago — first as an independent director — then as an investor.

Until that point, the thought of doing what I now do for a living as a second career was less than appealing to me.

Good investor partners are not on the playing field.  We don’t need to originate that many ideas nor dedicate years of blood, sweat and tears executing them. We don’t live every moment of the company’s life. We don’t need to be the smartest people in the room. The people we choose to invest in — many of them several times over — fill that role.

Over the years, I found that the most effective investors rarely are the smartest people in the room.  If they are, they’re likely in the wrong room.

Like the best operating leaders, their key competencies reside in helping to build teams, to catalyze goal-setting, to orchestrate the ideas and talents of others. But really good investor partners  “clear the brush” and create an environment which enables the success of the management team.  And they stay off the playing field unless invited on.

So…back to my recent experience.  This is not then — but now.

An inexperienced investor, one who’s experienced little success, who confused all of this.  He thought HE was the company.  HE was the reason why the company is on a roll. HE was calling the shots for the founder, CEO, management team and company.

Pretty big job. He obfuscates a level of insecurity with arrogance. And he’s lost the trust and confidence of his management team in the process.

He brought it all back to me. Kind of a good reminder, all in all. And just as repugnant an experience this time around.

Sometimes, when really special, incredibly-intelligent people consistently come to an investor asking for money, and then experience great progress, it’s easy to confuse one’s role.  It’s possible to feel more important than you really are.

Unless you have real purpose clear in your own mind.  And work with people who share those beliefs.

Otherwise, it’s hard to be an effective partner to folks — after you give them that money.

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