VMware Buys AirWatch for $1.54 Billion(dealbook.nytimes.com)
dealbook.nytimes.com
VMware Buys AirWatch for $1.54 Billion
http://dealbook.nytimes.com/2014/01/22/vmware-buys-mobile-security-firm-for-1-54-billion/
40 comments
I work at the VC that invested in AirWatch last year. We're happy with the investment given that it was a relatively quick and clean exit given our typical 3-5+ year exit timeline.
Thanks for replying! That's what I love about HN - someone almost always has an expert/inside answer.
I gather when it's that fast and that big, you might not need that 10x multiple.
I gather when it's that fast and that big, you might not need that 10x multiple.
It's definitely not a total win - first, the return isn't actually ~50% given the $365M in installment payments and assumed unvested equity; second, your LPs committed capital to your fund expecting a certain IRR over the length of the fund (7 years i'm guessing? 10?). Getting them a low- to mid-double digit IRR over 1 year is nice, but it also means that they now have to spend money figuring out how to redeploy that capital for the next 6 years.
lol. Oh boo-hoo, I have all this extra money sitting around that I didn't plan to have for at least 6 years and I need to figure out how to use it. Woe is me, woe is me. ;)
But yeah, I do get what you're saying about having capital that isn't properly invested = loss of potential gains... I guess. Very first-world problem though :)
But yeah, I do get what you're saying about having capital that isn't properly invested = loss of potential gains... I guess. Very first-world problem though :)
Hi mlyang, can I contact you next week to quickly talk about a product for the desktop virtualization market that I think have a good potential?
"And doesn't it show just how insane VC funding is, when you realize that some of the investors may actually be disappointed?"
I imagine I'd be disappointed too if this 50% return didn't cover the 55%-100% losses on other investments... VC investment seems to be a game of extremes, both up & down.
I imagine I'd be disappointed too if this 50% return didn't cover the 55%-100% losses on other investments... VC investment seems to be a game of extremes, both up & down.
(Per above comment, I work at the VC that invested in Airwatch): Because Insight is a growth stage VC deploying a significant amount of capital with each investment (in AirWatch's case, it was 200M), it's aiming for virtually all hits (unlike an earlier stage VC that's aiming for 1 out of 10 of their portfolio co's to succeed wildly)-- which it almost always succeeds in achieving. This also means that it gets lower returns on its funds relative to an earlier stage VC. Given the growth stage focus, that's to be expected and its LPs prefer the reliable (and relatively substantial) upside given the fund sizes. AKA Insight's not dealing with 55%-100% losses on other investments.
They didn't make 50%, that isn't how 1x liquid prefs work. They take back their principle first so +$225m, then from there they split the portion that they own, say 22.5% of 1.3 is +$293m. Total around $523m or 130% gain. For an investment fund at this stage, that is well within normal gains.
That's only true if the investment was participating preferred equity (sometimes known as "double-dipping"); if it was convertible preferred equity then it's an either/or scenario (they choose between getting their liquidation preference, or converting to common equity and getting their pro rata %). Insight used to be big on participating prefered so I wouldn't be surprised if you're right, but things may have changed..
How's this acquisition strategic for VMware?
Speculation: Gartner's recent negative view on VMware's innovation capabilities caused VMware management to freak out and go out and buy anything "innovative" that was for sale in the mobility arena. Mobility is hot, and VMware wants have a piece of the cake.
That's a really simplistic speculation. VMware management is considerably more measured than that. VMware has had an End-User-Computing units for years now. With more computing done on mobile and less on PCs, it stands to reason that VMware would like to move in that direction too for their EUC group, especially if the disruption upends the entrenched position Citrix has had on the PC.
They're trying to build an end-user computing portfolio. Citrix has a pretty good story with Xenprise.
MDM is a crowded space without alot of differentiation, and the big players are all moving in to soak up market leaders. Citrix bought Zenprise last year. IBM bought MaaS360 a few months ago. I'm sure MobileIron is next.
MDM is a crowded space without alot of differentiation, and the big players are all moving in to soak up market leaders. Citrix bought Zenprise last year. IBM bought MaaS360 a few months ago. I'm sure MobileIron is next.
From my point of view MDM is more and more getting legacy and most corporations have already chosen a MDM platform, MobileIron has to hurry to find a vendor who is late to this market - like Microsoft maybe?
Virtual enterprises through BYOD. VMware provides you a client on whatever you want (laptop, tablet, phone), manages the device management, virtual apps on their server. I've used VMWare View Client to connect to a remote machine a few times from my iPad, and while it's not ideal for large amounts of work, it has saved a few vacations from total ruin, even over LTE. Providing the client wasn't enough, I guess, so now they can offer management of the device, remote wipe of company assets (email, calendar) and revocation of network credentials.
I work at AirWatch. This a great win for the Atlanta seed ecosystem.
You are assuming that AirWatch is going to stay in ATL. What happens when VMWare wants you guys to move?
I dont know why you still consider yourselves a startup, you guys were probably a startup in the Wandering Wifi days but I think those times have past.
I dont know why you still consider yourselves a startup, you guys were probably a startup in the Wandering Wifi days but I think those times have past.
I worked at AirWatch and now I work at Pardot ( a salesforce.com company) . This is indeed a huge win for ATL startup ecosystem. I was actually expecting AW to go public.
We have AirWatch, and I didn't know they were considered a startup. It really explains their support knowing this.
The support is of good quality or bad?
Completely lapsed and left that out. Support is very cavalier. If you submit a web ticket, it can be days before they even look at it. A lot of problems are just brushed off, you're given a curt "its not a problem with our software" and that is that. I understand they are at the mercy of the device vendor when it comes to certain things, for example Apple cutting off device tracking of WiFi-only iPads.
I really dislike the blackbox aspect of AirWatch itself. You prep the servers, but they perform the install and the updates. You have to pay for updates out of a bank of paid hours. For example, you want to go from 5.5 to 5.6. If it takes an hour and a half, it is taken out of your bank. You also pay for every device you have checked into AirWatch. It just reeks of double-charging. You don't get charged if you have a problem stemming from a bug.
I install and maintain much more complicated software. I'd really rather they give me the update and if it goes awry then I'd call support. It runs on Windows server, it isn't rocket science.
The initial install support and training was sub-par, too. The same engineer that performs the install also gives you a basic rundown on the console. Very quick, and sometimes the best technical people shouldn't also train people on its usage.
That all being said, I have about 1200 devices in AirWatch. More or less I am the only person for the deployment and maintenance of these devices. I have very little complaints about the use of AirWatch, my job would be a lot more difficult without it.
I really dislike the blackbox aspect of AirWatch itself. You prep the servers, but they perform the install and the updates. You have to pay for updates out of a bank of paid hours. For example, you want to go from 5.5 to 5.6. If it takes an hour and a half, it is taken out of your bank. You also pay for every device you have checked into AirWatch. It just reeks of double-charging. You don't get charged if you have a problem stemming from a bug.
I install and maintain much more complicated software. I'd really rather they give me the update and if it goes awry then I'd call support. It runs on Windows server, it isn't rocket science.
The initial install support and training was sub-par, too. The same engineer that performs the install also gives you a basic rundown on the console. Very quick, and sometimes the best technical people shouldn't also train people on its usage.
That all being said, I have about 1200 devices in AirWatch. More or less I am the only person for the deployment and maintenance of these devices. I have very little complaints about the use of AirWatch, my job would be a lot more difficult without it.
If I was an investor, these types of answers are the real gems that I would look for before making any acquisition.
"That all being said, I have about 1200 devices in AirWatch. More or less I am the only person for the deployment and maintenance of these devices. I have very little complaints about the use of AirWatch, my job would be a lot more difficult without it."
That is value right there.
"That all being said, I have about 1200 devices in AirWatch. More or less I am the only person for the deployment and maintenance of these devices. I have very little complaints about the use of AirWatch, my job would be a lot more difficult without it."
That is value right there.
And in fact, these are the sorts of things that M&A departments at large companies look for - companies with good market share, a product that drives value, but perhaps are not perfect on execution (sales, support, implementation), because that's where the acquirer can add incremental value.
Excellent answer, thank you.
A STRONG second on that support for AirWatch biff!
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I guess the employee is getting screwed?
From what I have heard about working at AirWatch, they dont really care about screwing their employees.
Source: friends who used to or still work at AirWatch.
Source: friends who used to or still work at AirWatch.
Looks like an upround to me, but the question is what the liquidation preference was, and whether there was any money leftover for the common (I.E. employees)
You also need to keep in mind that this is an Atlanta-based company and not a Silicon Valley based one. The employees are likely to have worse contracts that what you'd find in the Bay Area, especially if the original and seed investors were local to the Atlanta region or Southeast. I know that term sheets from Raleigh-Durham investors are typically less favorable than out here in the Bay Area and I would expect the same in the Atlanta ecosystem.
In secondary funding markets, VCs have far more bargaining power. If you have real traction and are in those markets, you simply don't raise money there. You come out to the Bay Area instead where more VCs will compete to invest in you.
In secondary funding markets, VCs have far more bargaining power. If you have real traction and are in those markets, you simply don't raise money there. You come out to the Bay Area instead where more VCs will compete to invest in you.
Sorry, I don't quite get it. Why are the employees screwed? I know that the VSs got liquidate first usually. But the employees also have their shares value raised in their pocket. If the contracts are not favorable, then even if they go IPO, it's the same for the employees, right? This is different from a new round of VC investment which may dilute the employees holdings.
"I know that the VSs got liquidate first usually."
I'm saying that companies raising rounds in secondary markets like Atlanta and Raleigh typically get less favorable terms than those raising money in Silicon Valley. They have fewer VCs to choose from and the local VCs have term sheet expectations more similar to the term sheet expectations in the Bay Area from several years ago, which are far less favorable to term sheets today. I doubt that startups in secondary markets could even find investors willing to offer convertible notes or willing to budge on liquidation preferences.
Thank you for your information. Do you mean in Silicon Valley, VCs are rarely get preferred stocks from the startup company? But why are they offering convertible notes which to me is more risk for the startup companies than the VCs?
(And doesn't it show just how insane VC funding is, when you realize that some of the investors may actually be disappointed?)