May
05
2021
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Shift Technology raises $220M at a $1B+ valuation to fight insurance fraud with AI

While incumbent insurance providers continue to get disrupted by startups like Lemonade, Alan, Clearcover, Pie and many others applying tech to rethink how to build a business around helping people and companies mitigate against risks with some financial security, one issue that has not disappeared is fraud. Today, a startup out of France is announcing some funding for AI technology that it has built for all insurance providers, old and new, to help them detect and prevent it.

Shift Technology, which provides a set of AI-based SaaS tools to insurance companies to scan and automatically flag fraud scenarios across a range of use cases — they include claims fraud, claims automation, underwriting, subrogation detection and financial crime detection — has raised $220 million, money that it will be using both to expand in the property and casualty insurance market, the area where it is already strong, as well as to expand into health, and to double down on growing its business in the U.S. It also provides fraud detection for the travel insurance sector.

This Series D is being led by Advent International, via Advent Tech, with participation from Avenir and others. Accel, Bessemer Venture Partners, General Catalyst and Iris Capital — who were all part of Shift’s Series C led by Bessemer in 2019 — also participated. With this round, Paris-and-Boston-based Shift Technology has now raised some $320 million and has confirmed that it is now valued at over $1 billion.

The company currently has around 100 customers across 25 different countries — with the list including Generali France and Mitsui Sumitomo, to give you an idea of where it’s pitching its business — and says that it has already analyzed nearly two billion claims, data that’s feeding its machine learning algorithms to improve how they work.

The challenge (or I suppose, opportunity) that Shift is tackling, however, is much bigger. The Coalition Against Insurance Fraud, a nonprofit in the U.S., estimates that at least $80 billion of fraudulent claims are made annually in the U.S. alone, but the figure is likely significantly higher. One problem has, ironically, been the move to more virtualized processes, which open the door to malicious actors exploiting loopholes in claims filing and fudging information. Another is the fact that insurance has grown as a market, but so too has the amount of people who are in financial straights, leading to more desperate and illegal acts to gain an edge.

Shift is also not alone in tackling this issue: the market for insurance fraud detection technology globally was estimated to be worth $2.5 billion in 2019 and projected to be worth as much as $8 billion by 2024.

In addition to others in claims management tech such as Brightcore and Guidewire, many of the wave of insurtech startups are building in their own in-house AI-based fraud protection, and it’s very likely that we’ll see a rise of other fraud protection services, built out of adjacent areas like fintech to guard against financial crime, making their way to insurance. As many a fintech entrepreneur has said to me in the past, the mechanics of how the two verticals work and the compliance issues both face are very closely aligned.

“The entire Shift team has worked tirelessly to build this company and provide insurers with the technology solutions they need to empower employees to best be there for their policyholders. We are thrilled to partner with Advent International, given their considerable sector expertise and global reach and are taking another giant step forward with this latest investment,” stated Jeremy Jawish, CEO and co-founder, Shift Technology, in a statement. “We have only just scratched the surface of what is possible when AI-based decision automation and optimization is applied to the critical processes that drive the insurance policy lifecycle.”

For its backers, one key point with Shift is that it’s helping older providers bring on more tools and services that can help them improve their margins as well as better compete against the technology built by newer players.

“Since its founding in 2014, Shift has made a name for itself in the complex world of insurance,” said Thomas Weisman, an Advent director, in a statement. “Shift’s advanced suite of SaaS products is helping insurers to reshape manual and often time-consuming claims processes in a safer and more automated way. We are proud to be part of this exciting company’s next wave of growth.”

May
04
2021
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Starboard Value puts Box on notice that it’s looking to take over board

Activist investor Starboard Value is clearly fed up with Box and it let the cloud content management know it in no uncertain terms in a letter published yesterday. The firm, which bought a 7.7% stake in Box two years ago, claims the company is underperforming, executing poorly and making bad business decisions — and it wants to inject the board of directors with new blood.

While they couched the letter in mostly polite language, it’s quite clear Starboard is exasperated with Box. “While we appreciate the dialogue we have had with Box’s management team and Board of Directors (the “Board”) over the past two years, we have grown increasingly frustrated with continued poor results, questionable capital allocation decisions, and subpar shareholder returns,” Starboard wrote in its letter.

Box, as you can imagine, did not take kindly to the shot across its bow and responded in a press release that it has bent over backwards to accommodate Starboard, including refreshing the board last year when they added several members, whom they point out were approved by Starboard.

“Box has a diverse and independent Board with directors who bring extensive technology experience across enterprise and consumer markets, enterprise IT, and global go-to-market strategy, as well as deep financial acumen and proven track records of helping public companies drive disciplined growth, profitability, and stockholder value. Furthermore, seven of the ten directors on the Box Board will have joined the Board within the last three years,” the company wrote in a statement. In other words, Box is saying it already has injected the new blood that Starboard claims it wants.

Box recently got a $500 million cash injection from KKR, widely believed to be an attempt to bulk up cash reserves with the goal of generating growth via acquisition. Starboard was particularly taken aback by this move, however. “The only viable explanation for this financing is a shameless and utterly transparent attempt to “buy the vote” and shows complete disregard for proper corporate governance and fiscal discipline,” Starboard wrote.

Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, a firm that closely tracks the content management market, says the two sides clearly aren’t aligned, and that’s not likely to change. “Starboard targeted and gained a seat on the board at Box at a difficult time for the firm, that’s the modus operandi for activist investors. Since that time there has clearly been a lot of improvements in terms of Box’s financial goals. However, there is and will remain a misalignment between Starboard’s goals, and Box led by Levie as a whole. Though both would like to see the share price rise, Starboard’s end goal is most likely to see Box acquired, sooner rather than later, and that is not Box’s goal,” he said.

Starboard believes the only way to resolve this situation is to inject the board with still more new blood, taking a swipe at the Box leadership team while it was at it. “There is no good reason that Box should be unable to deliver improved growth and profitability, at least in-line with better performing software companies, which, in turn, would create significant shareholder value,” Starboard wrote.

As such the firm indicated it would be putting up its own slate of board candidates at the company’s next board meeting. In the tit for tat that has been this exchange, Box indicated it would be doing the same.

Meanwhile Box vigorously defended its results. “In the past year, under the oversight of the Operating Committee, the company has made substantial progress across all facets of the business — strategic, operational and financial — as demonstrated by the strong results reported for the full year of fiscal 2021,” the company wrote, pointing to its revenue growth last fiscal year as proof of the progress, with revenue of $771 million up 11% year over year.

It’s unclear how this standoff will play out, but clearly Starboard wants to take over the Board and have its way with Box, believing that it can perform better if it were in charge. That could result ultimately, as Pelz-Sharpe suggested, in Box being acquired.

We would appear to heading for a showdown, and when it’s over, Box could be a very different company, or the current leadership could assert control once and for all and we could proceed with Box’s current growth strategy still in place. Time will tell which is the case.

Apr
29
2021
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Vectra AI picks up $130M at a $1.2B valuation for its network approach to threat detection and response

Cybersecurity nightmares like the SolarWinds hack highlight how malicious hackers continue to exploit vulnerabilities in software and apps to do their dirty work. Today a startup that’s built a platform to help organizations protect themselves from this by running threat detection and response at the network level is announcing a big round of funding to continue its growth.

Vectra AI, which provides a cloud-based service that uses artificial intelligence technology to monitor both on-premise and cloud-based networks for intrusions, has closed a round of $130 million at a post-money valuation of $1.2 billion.

The challenge that Vectra is looking to address is that applications — and the people who use them — will continue to be weak links in a company’s security set-up, not least because malicious hackers are continually finding new ways to piece together small movements within them to build, lay and finally use their traps. While there will continue to be an interesting, and mostly effective, game of cat-and-mouse around those applications, a service that works at the network layer is essential as an alternative line of defense, one that can find those traps before they are used.

“Think about where the cloud is. We are in the wild west,” Hitesh Sheth, Vectra’s CEO, said in an interview. “The attack surface is so broad and attacks happen at such a rapid rate that the security concerns have never been higher at the enterprise. That is driving a lot of what we are doing.”

Sheth said that the funding will be used in two areas. First, to continue expanding its technology to meet the demands of an ever-growing threat landscape — it also has a team of researchers who work across the business to detect new activity and build algorithms to respond to it. And second, for acquisitions to bring in new technology and potentially more customers.

(Indeed, there has been a proliferation of AI-based cybersecurity startups in recent years, in areas like digital forensics, application security and specific sectors like SMBs, all of which complement the platform that Vectra has built, so you could imagine a number of interesting targets.)

The funding is being led by funds managed by Blackstone Growth, with unnamed existing investors participating (past backers include Accel, Khosla and TCV, among other financial and strategic investors). Vectra today largely focuses on enterprises, highly demanding ones with lots at stake to lose. Blackstone was initially a customer of Vectra’s, using the company’s flagship Cognito platform, Viral Patel — the senior MD who led the investment for the firm — pointed out to me.

The company has built some specific products that have been very prescient in anticipating vulnerabilities in specific applications and services. While it said that sales of its Cognito platform grew 100% last year, Cognito Detect for Microsoft Office 365 (a separate product) sales grew over 700%. Coincidentally, Microsoft’s cloud apps have faced a wave of malicious threats. Sheth said that implementing Cognito (or indeed other network security protection) “could have prevented the SolarWinds hack” for those using it.

“Through our experience as a client of Vectra, we’ve been highly impressed by their world-class technology and exceptional team,” John Stecher, CTO at Blackstone, said in a statement. “They have exactly the types of tools that technology leaders need to separate the signal from the noise in defending their organizations from increasingly sophisticated cyber threats. We’re excited to back Vectra and Hitesh as a strategic partner in the years ahead supporting their continued growth.”

Looking ahead, Sheth said that endpoint security will not be a focus for the moment because “in cloud there is so much open territory”. Instead it partners with the likes of CrowdStrike, SentinelOne, Carbon Black and others.

In terms of what is emerging as a stronger entry point, social media is increasingly coming to the fore, he said. “Social media tends to be an effective vector to get in and will remain to be for some time,” he said, with people impersonating others and suggesting conversations over encrypted services like WhatsApp. “The moment you move to encryption and exchange any documents, it’s game over.”

Apr
27
2021
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Vista Equity takes minority stake in Canada’s Vena with $242M investment

Vena, a Canadian company focused on the Corporate Performance Management (CPM) software space, has raised $242 million in Series C funding from Vista Equity Partners.

As part of the financing, Vista Equity is taking a minority stake in the company. The round follows $25 million in financing from CIBC Innovation Banking last September, and brings Vena’s total raised since its 2011 inception to over $363 million.

Vena declined to provide any financial metrics or the valuation at which the new capital was raised, saying only that its “consistent growth and…strong customer retention and satisfaction metrics created real demand” as it considered raising its C round.

The company was originally founded as a B2B provider of planning, budgeting and forecasting software. Over time, it’s evolved into what it describes as a “fully cloud-native, corporate performance management platform” that aims to empower finance, operations and business leaders to “Plan to Growtheir businesses. Its customers hail from a variety of industries, including banking, SaaS, manufacturing, healthcare, insurance and higher education. Among its over 900 customers are the Kansas City Chiefs, Coca-Cola Consolidated, World Vision International and ELF Cosmetics.

Vena CEO Hunter Madeley told TechCrunch the latest raise is “mostly an acceleration story for Vena, rather than charting new paths.”

The company plans to use its new funds to build out and enable its go-to-market efforts as well as invest in its product development roadmap. It’s not really looking to enter new markets, considering it’s seeing what it describes as “tremendous demand” in the markets it currently serves directly and through its partner network.

“While we support customers across the globe, we’ll stay focused on growing our North American, U.K. and European business in the near term,” Madeley said.

Vena says it leverages the “flexibility and familiarity” of an Excel interface within its “secure” Complete Planning platform. That platform, it adds, brings people, processes and systems into a single source solution to help organizations automate and streamline finance-led processes, accelerate complex business processes and “connect the dots between departments and plan with the power of unified data.”            

Early backers JMI Equity and Centana Growth Partners will remain active, partnering with Vista “to help support Vena’s continued momentum,” the company said. As part of the raise, Vista Equity Managing Director Kim Eaton and Marc Teillon, senior managing director and co-head of Vista’s Foundation Fund, will join the company’s board.

“The pandemic has emphasized the need for agile financial planning processes as companies respond to quickly-changing market conditions, and Vena is uniquely positioned to help businesses address the challenges required to scale their processes through this pandemic and beyond,” said Eaton in a written statement. 

Vena currently has more than 450 employees across the U.S., Canada and the U.K., up from 393 last year at this time.

Apr
20
2021
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IBM breaks latest revenue losing streak as cloud revenue shows modest growth

For IBM, much of the last 8 years simply posting positive revenue growth was a challenge. In fact, the company had a period between 2013 and 2018 when it experienced an astonishing 22 straight quarters of negative revenue growth. So when Big Blue reported yesterday that revenue was up slightly, I’m sure the company took that as a win. Investors appear to be happy with the results with the stock up 4.73% this morning as of publication.

Consider that over the last 8 quarters encompassing FY2019 and FY2020, the company had only one positive revenue quarter when it was up 0.1% in Q42019. It had had five losing quarters prior to that one. When you look at yesterday’s report in that light, and combine it with growth in the Cloud and Cognitive Services group, it adds up to a decent quarter for IBM, one it badly needed after another negative report in the prior quarter.

Looking back at the January report, the company reported Cloud and Cognitive Services revenues down 4.5% at $6.8 billion, which was a big blow considering the company has been betting much of its future on those very areas, fueled in large part by the $34 billion Red Hat acquisition in 2018.

Its most recent quarterly report proved much better with the company reporting Cloud and Cognitive Services revenues of $5.4 billion, up 3.8% YoY. Interestingly quarter-on-quarter revenue for the segment was down, but rose on a year-over-year basis. Perhaps a year-end enterprise revenue push could account for the difference between Q4 2020 and Q1 2021.

At any rate, IBM CEO Arvind Krishna saw today’s report as a positive sign that his attempts to push the company toward a future focused on hybrid computing and AI were starting to take root. He also saw enough in the report to predict some growth this year.

“In our last call, we shared our financial expectations for the year, revenue growth and $11 billion to $12 billion of adjusted free cash flow. While it’s still early in the year and a lot remains to be done, we are confident enough to say that we are on track,” Krishna said in the earnings call with analysts yesterday.

The company has made a number of smaller acquisitions over the last year including a couple of consulting companies, which should help as they try to work with customers around the transition to hybrid computing and artificial intelligence, both of which tend to require a lot of hand-holding to get done.

At the same time of course, the company is continuing apace with its spin out of the legacy infrastructure services division, which it announced last year. The plan at this point is to rename the company Kyndryl (an unfortunate choice) and complete the spin out by year’s end.

CFO Jim Kavanaugh also sees the modestly positive quarter as something the company can build on. “…in fact we are even more confident in the position we put in place with regards to our two most important measures, one, revenue growth, and second, adjusted free cash flow, which is going to provide the fuel for the investments needed for us to capture that hybrid cloud $1 trillion TAM,” Kavanaugh said in the earnings call with analysts.

All of this is being pushed by Red Hat, which grew revenue 15% in the most recent quarter, something the company is banking will continue to advance it deeper into positive territory throughout the rest of 2021.

Krishna is not looking for booming growth by any means. He just wants growth, and even sustained single digit top line expansion will make him happy. “Our systems if I take a two-year to three-year view kind of flattish, but in any given year it might increase or decrease but not by a whole lot. It doesn’t impact the topline a lot and that’s how sort of we get to the mid-single-digit sustainably,” Krishna said in the call.

The CEO simply wants to bring some long-term stability back to the company it has been sadly lacking in recent years. Of course, it’s hard to know if this quarter was a temporary upward blip on IBM’s earnings chart, one of those fluctuations up or down he spoke of, or if it is the corner the company has been looking to turn for years. Only time will tell whether IBM can sustain the modest revenue goals Krishna has set for the organization, or if it will fall back into the revenue doldrums that have plagued the company for the last eight years.

Apr
20
2021
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FintechOS nabs $60M for a low-code approach to modernizing legacy banking and insurance services

“Challenger” startups in banking and insurance have upended their industries, and picked up significant business, by building more customer-friendly tools and services — more personalized, easier to access and usually competitively priced — than those typically provided by their bigger, incumbent rivals. Now, a startup out of Romania that is building tools to help the incumbents respond with better services of their own is announcing a significant round of funding as its business grows.

FintechOS, which has built a low-code platform aimed at larger (older) banking and insurance companies to help them build new services and analytics on top of and around their existing infrastructure, has raised €51 million ($61.5 million at today’s rates, but $60 million at the time of the deal closing) in a Series B round of funding.

FintechOS’s opportunity has been to target the wave of incumbents in the insurance and banking industries that have been slowly watching as newer players like Lemonade (in insurance) and a huge plethora of challenger banks (Revolut, N26, Monzo and many others) are swooping in and picking up customers, especially among younger demographics, while they have been unable to respond mostly because their infrastructure is too old and big. Turning a huge ship around, as we have seen, is no small task — a situation that has become only more apparent in the last year of pandemic living and the big shift to digital interactions that resulted from it.

“When we launched FintechOS in 2017, we could already see existing solutions to digital transformation would struggle to deliver tangible results. By contrast, our unique approach has quickly inspired a sea-change in how financial institutions address digitization and engage with their customers,” said Teodor Blidarus, co-founder and CEO at FintechOS, in a statement. “Events over the last year have only increased pressure on our industry to evolve and as a result we’re seeing growing demand for our powerful platforms. Our latest round of funding will help us grow at the pace needed to improve outcomes for financial institutions and their customers globally.”

(It is not the only one. Others out of Europe in the space of bringing new tools to incumbent banks to help them make more modern and competitive products include 10x, Thought Machine, Temenos, Mambu and many more.)

The Series B round of funding is being led by Draper Esprit, with Earlybird, Gapminder Ventures, Launchub and OTB Ventures (which all participated in its Series A in December 2019) also participating. There are other backers in the round that are not being disclosed at this time, the startup added. FintechOS is also not disclosing its valuation. The company, based out of Bucharest, has raised just under $80 million to date.

FintechOS is active today in the U.K. and Europe — where it has been growing at a CAGR of 200% and says its services touch “millions” of people, with some of its key customers including the likes of banking giants Societe Generale and IdeaBank and international insurance brokers Howden. The plan will be to continue investing in those markets, as well as expanding internationally.

And it will be adding more services. Today, the banking platform is designed to help banks launch more retail services for consumers and small and medium business customers, and for insurance companies to build new health, life and general insurance products (there are a lot of synergies in how insurance and financial services companies have been built over the years, and so it’s a natural couplet when it comes to building tools for those industries).

In the financial sector, FintechOS lets banks build in new digital onboarding flows, credit cards and loan products, savings and mortgage products. Insurance products include new approaches to generating and handling quotes, customer onboarding and management and claims automation — which may well bring FintechOS into closer contact and collaboration with the most successful startup to come out of its home country to date, the RPA juggernaut UiPath. In all cases, it helps stitch together data from a bank’s own systems with more modern tooling, and to link that up with yet more modern tools to help process that data more easily.

This is “low code,” but it typically means that the company needs to work with third parties to enable all of this. Partners include the likes of integrators and other global services technicians, such as Microsoft, Deloitte, CapGemini, KPMG and so on. (And the founders of the startup themselves come from consulting backgrounds so they well understand the role these companies play in the process of bringing technology into big businesses.)

FintechOS is tapping into a couple of very big trends that have arguably been the biggest in the financial and related insurance industries.

The first of these is the fact that core services around things like credit/loans, current deposits and savings are not just very complex to build but actually have largely become commoditized — similar to digital payments — and so packaging them up and turning them into services that can be integrated by way of an API makes them more easily accessed without the heavy lifting needed to build them from scratch. This lets companies focus instead on customer service or building more interesting tools around those basic services to customise them (for example AI-based personalization). Disintermediating basic functions from the services built around them is arguably a bigger trend, but it has been especially prevalent in enterprise, which has long been a slow-moving space when it comes to innovation in the back-end, and the front-end.

The second of these is the big swing toward using no-code and low-code tools to empower more people within organizations to get stuck in when they can see something not working as efficiently as it could, and building the workflows themselves to improve that. This also applies to trying out and testing new products — again something that typically has not been done in financial and insurance services but can now be possible with low-code and no-code tools.

“Not only is our technology helping financial institutions become customer centric, but it’s also helping them provide products and services to more people and businesses,” said Sergiu Negut, the other co-founder who is FintechOS’s CFO and COO, in a separate statement. “With so many markets still underserved, the ability to tailor offerings to a segment of one offers the opportunity to increase financial inclusion and adheres to our ideal that easy access to financial services is essential. We’re delighted to be working with investors who share our views on how fintech should be transforming the financial services industry.”

Notably, Draper Esprit also has backed Thought Machine, another big player in the world of fintech that is taking some of the learnings and models that have helped new entrants disrupt incumbents, and is packaging them up as services for incumbents, too. It takes a different approach to doing this, not using low-code but smart contracts, which could be one reason why the VC doesn’t see the investments as conflict of interest. They are also tackling an enormous market, and so at least for now there is room for them, and many others in the space, such as 10x, Temenos, Mambu, Rapyd and many others.

“When we met Teo and Sergiu, we were immediately convinced of their vision: a data led, end-to-end platform, facilitated with a low-code/no-code infrastructure,” Vinoth Jayakumar, partner at Draper Esprit, said in a statement. “Incumbent financial services firms have cost-to-income ratios up to 90%, so we see a huge and increasing need for infrastructure software that allows digitisation at speed, ease and lower cost. Draper Esprit builds enduring partnerships; with the team at FintechOS we hope to build an enduring fintech company that will dramatically change financial services experiences for people all over the world.”

 

 

Apr
18
2021
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Once VMware is free from Dell, who might fancy buying it?

TechCrunch has spilled much digital ink tracking the fate of VMware since it was brought to Dell’s orbit thanks to the latter company’s epic purchase of EMC in 2016 for $58 billion. That transaction saddled the well-known Texas tech company with heavy debts. Because the deal left VMware a public company, albeit one controlled by Dell, how it might be used to pay down some of its parent company’s arrears was a constant question.

Dell made its move earlier this week, agreeing to spin out VMware in exchange for a huge one-time dividend, a five-year commercial partnership agreement, lots of stock for existing Dell shareholders and Michael Dell retaining his role as chairman of its board.

So, where does the deal leave VMware in terms of independence, and in terms of Dell influence? Dell no longer will hold formal control over VMware as part of the deal, though its shareholders will retain a large stake in the virtualization giant. And with Michael Dell staying on VMware’s board, it will retain influence.

Here’s how VMware described it to shareholders in a presentation this week. The graphic shows that under the new agreement, VMware is no longer a subsidiary of Dell and will now be an independent company.

Chart showing before and after structure of Dell spinning out VMware. In the after scenario, VMware is an independent company.

Image Credits: VMware

But with VMware tipped to become independent once again, it could become something of a takeover target. When Dell controlled VMware thanks to majority ownership, a hostile takeover felt out of the question. Now, VMware is a more possible target to the right company with the right offer — provided that the Dell spinout works as planned.

Buying VMware would be an expensive effort, however. It’s worth around $67 billion today. Presuming a large premium would be needed to take this particular technology chess piece off the competitive board, it could cost $100 billion or more to snag VMware from the public markets.

So VMware will soon be more free to pursue a transaction that might be favorable to its shareholders — which will still include every Dell shareholder, because they are receiving stock in VMware as part of its spinout — without worrying about its parent company simply saying no.

Apr
15
2021
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Should Dell have pursued a more aggressive debt-reduction move with VMware?

When Dell announced it was spinning out VMware yesterday, the move itself wasn’t surprising: there had been public speculation for some time. But Dell could have gone a number of ways in this deal, despite its choice to spin VMware out as a separate company with a constituent dividend instead of an outright sale.

The dividend route, which involves a payment to shareholders between $11.5 and $12 billion, has the advantage of being tax-free (or at least that’s what Dell hopes as it petitions the IRS). For Dell, which owns 81% of VMware, the dividend translates to somewhere between $9.3 and $9.7 billion in cash, which the company plans to use to pay down a portion of the huge debt it still holds from its $58 billion EMC purchase in 2016.

VMware was the crown jewel in that transaction, giving Dell an inroad to the cloud it had lacked prior to the deal. For context, VMware popularized the notion of the virtual machine, a concept that led to the development of cloud computing as we know it today. It has since expanded much more broadly beyond that, giving Dell a solid foothold in cloud native computing.

Dell hopes to have its cake and eat it too with this deal: it generates a large slug of cash to use for personal debt relief while securing a five-year commercial deal that should keep the two companies closely aligned. Dell CEO Michael Dell will remain chairman of the VMware board, which should help smooth the post-spinout relationship.

But could Dell have extracted more cash out of the deal?

Doing what’s best for everyone

Patrick Moorhead, principal analyst at Moor Insights and Strategies, says that beyond the cash transaction, the deal provides a way for the companies to continue working closely together with the least amount of disruption.

“In the end, this move is more about maximizing the Dell and VMware stock price [in a way that] doesn’t impact customers, ISVs or the channel. Wall Street wasn’t valuing the two companies together nearly as [strongly] as I believe it will as separate entities,” Moorhead said.

Apr
14
2021
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Dell is spinning out VMware in a deal expected to generate over $9B for the company

Dell announced this afternoon that it’s spinning out VMware, a move that has been suspected for some time. Dell, acquired VMware as part of the massive $58 billion EMC acquisition (announced as $67 billion) in 2015.

The way that the deal works is that Dell plans to offer VMware shareholders a special dividend of between $11.5 and 12 billion. As Dell owns approximately 81% of those shares that would work out to somewhere between $9.3 and $9.7 billion coming into Dell’s coffers when the deal closes later this year.

Dell shares are up more than 8% following the announcement. The company intends on using parts of its proceeds to deleverage, writing in a release that it will use “net proceeds to pay down debt, positioning the company well for Investment Grade ratings.” By that it means that Dell will reduce its net debt position and, it hopes, garner a stronger credit rating that will limit its future borrowing costs.

Even when it was part of EMC, VMware had a special status in that it operates as a separate entity with its own executive team, board of directors and the stock has been sold separately as well.

“Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers. At the same time, Dell Technologies will continue to modernize its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom,” Dell CEO Michael Dell said in a statement.

While there is a lot of CEO speak in that statement, it appears to mean that the move is mostly administrative as the companies will continue to work closely together, even after the spin off is official. Dell will remain as chairman of both companies.

For its part, VMware said in a separate release that the deal will allow it “increased freedom to execute its strategy, a simplified capital structure and
governance model and additional strategic, operational and financial flexibility, while maintaining the strength of the two companies’ strategic partnership.”

The deal is expected to close at the end of this year, but it has to clear a number of regulatory hurdles first. That includes garnering a favorable ruling from the IRS that the deal qualifies for a tax-free spin-off, which is seems to be a considerable hurdle for a deal like this.

This is a breaking story. We will have more soon.

Apr
06
2021
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OneStream raises $200M, now valued at $6B after its enterprise-focused financial software sees a surge of use

Digital transformation is the name of the game these days, and companies that are enabling businesses to take a leap into the future, by helping them tackle their most complex operations, are reaping the rewards. In the latest development, OneStream, a startup that provides a toolkit of services to enterprises to help them run financial operations (for example, reporting, planning, tax and more), has raised $200 million in primary equity. The funding values OneStream at $6 billion.

D1 Capital Partners led the financing, with participation from Tiger Global and Investment Group of Santa Barbara (IGSB), the company said. Tiger Global and D1 appear to share at least one common backer, Tiger Management, which may be one reason why you see them together in many big deals.

The company plans to use the funding to continue building out the tools that it provides to customers, and to keep up with demand for its services as more customers replace legacy applications and very basic, spreadsheet-based operations.

“We remain sharply focused on delivering innovative planning, reporting and analysis solutions designed to help our customers succeed for today’s fast-paced and increasingly complex business environment,” said Tom Shea, CEO of OneStream Software, in a statement. “The valuation we received is great recognition of the value our employees and stakeholders have helped to create, as well as the exciting opportunities ahead for OneStream.”

To put these large numbers into some context, OneStream was valued at $1 billion only two years ago, when KKR took a majority stake in the company worth more than $500 million. The company’s CFO, Bill Koefoed, has confirmed to us that KKR will continue to be “substantially OneStream’s largest shareholder and remains a very supportive investor”. The company meanwhile appears to be holding off any plans for going public for the time being — despite some possible hints that it was considering that move.

“OneStream is currently focused on delivering 100% customer access, continuing to grow the business and creating value for stakeholders,” Koefoed said. “IPO is a potential exit and OneStream is preparing to be a public company. However, there is no specific timeline.”

The growth in valuation, meanwhile, reflects the surge of business that OneStream has seen in the last two years, and in particular in the last 12 months, as companies have been compelled to update their systems to work more efficiently and flexibly amid the COVID-19 pandemic and the impact it has had around in-person interactions. OneStream said annual recurring revenue grew 85% in 2020, with customers growing by 40% to 650 enterprises.

The company’s focus is specifically in the area commonly called corporate performance management (CPM), which includes a number of the financial corporate operations that a company runs behind the scenes to keep its business ticking.

Some of these would have fallen to a range of software providers, and much of the work would have been carried out by way of on-premise solutions, with companies like SAP, Oracle Hyperion and IBM dominating the space with all-in solutions, and others like Anaplan and Blackline providing point solutions addressing specific aspects of those functions.

But as with other areas of enterprise services, the advances of technology and software have created opportunities to take a lot of that functionality into the cloud and to run the processes across a single system to improve analytics and efficiency, and that has provided an opportunity to the likes of OneStream.

The impact of the pandemic should not be underestimated in this trend, and it was one that OneStream was able to nail because its software can be used across disparate teams and can draw a direct line to helping companies manage their finances better. And unlike a lot of tech companies that raise venture funding, one interesting detail with OneStream is that it has extended its customer base well outside the realm of technology companies and other early adopters. Those using its software include the likes of Fruit of the Loom, McCain (the frozen fries king) and AAA, but also Takeaway.com, the Carlyle Group and many others.

“The pandemic accelerated OneStream’s business given that it was a wake-up call for many companies that had not digitally transformed their key finance processes,” said Koefoed. “As a result, we have seen increased demand from companies who were using spreadsheets or legacy CPM applications to manage their financial close, consolidation, reporting, planning and forecasting processes… They are better able to keep their finance teams connected and collaborating while physically dispersed. In addition, we have seen many organizations increasing the frequency of their forecasting and scenario modeling from quarterly or monthly to weekly and daily in some cases, especially during the early days of the pandemic when modeling revenue and cash flow was critical.”

For investors, the interest more specifically was how OneStream managed to add more customers away from competitors in the last year.

OneStream’s platform delivers exceptional customer value,” said Andrew Wynne, a principal at D1 Capital Partners, in a statement. “Management’s intense focus on customer success has enabled OneStream to capture significant market share from incumbents, while posting strong growth in both revenue and customer acquisition. We believe OneStream has both the vision and product required to be a dominant force in its industry.”

Going forward, it sounds like the company will continue to build on what it has already established. That will include more business into Asia Pacific alongside its current operations in North America and Europe, Koefoed said. It will also use its foothold in finance and providing services to the finance department to make inroads into other areas that link closely to money management: money spending and revenue generation, with tools to plan and operate in areas like HR, IT, sales, marketing, supply chain management “and other areas to ensure alignment and optimal resource allocations,” he added.

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