Sep
15
2020
--

In 2020, Warsaw’s startup ecosystem is ‘a place to observe carefully’

If you listed the trends that have captured the attention of 20 Warsaw-focused investors who replied to our recent surveys, automation/AI, enterprise SaaS, cleantech, health, remote work and the sharing economy would top the list. These VCs said they are seeking opportunities in the “digital twin” space, proptech and expanded blockchain tokenization inside industries.

Investors in Central and Eastern Europe are generally looking for the same things as VCs based elsewhere: startups that have a unique value proposition, capital efficiency, motivated teams, post-revenue and a well-defined market niche.

Out of the cohort we interviewed, several told us that COVID-19 had not yet substantially transformed how they do business. As Micha? Papuga, a partner at Flashpoint VC put it, “the situation since March hasn’t changed a lot, but we went from extreme panic to extreme bullishness. Neither of these is good and I would recommend to stick to the long-term goals and not to be pressured.”

Said Pawel Lipkowski of RBL_VC, “Warsaw is at its pivotal point — think Berlin in the ‘90s. It’s a place to observe carefully.”

Here’s who we interviewed for part one:

For the conclusion, we spoke to the following investors:

Karol Szubstarski, partner, OTB Ventures

What trends are you most excited about investing in, generally?
Gradual shift of enterprises toward increased use of automation and AI, that enables dramatic improvement of efficiency, cost reduction and transfer of enterprise resources from tedious, repeatable and mundane tasks to more exciting, value added opportunities.

What’s your latest, most exciting investment?
One of the most exciting opportunities is ICEYE. The company is a leader and first mover in synthetic-aperture radar (SAR) technology for microsatellites. It is building and operating its own commercial constellation of SAR microsatellites capable of providing satellite imagery regardless of the cloud cover, weather conditions and time of the day and night (comparable resolution to traditional SAR satellites with 100x lower cost factor), which is disrupting the multibillion dollar satellite imagery market.

Are there startups that you wish you would see in the industry but don’t? What are some overlooked opportunities right now?
I would love to see more startups in the digital twin space; technology that enables creation of an exact digital replica/copy of something in physical space — a product, process or even the whole ecosystem. This kind of solution enables experiments and [the implementation of] changes that otherwise could be extremely costly or risky – it can provide immense value added for customers.

What are you looking for in your next investment, in general?
A company with unique value proposition to its customers, deep tech component that provides competitive edge over other players in the market and a founder with global vision and focus on execution of that vision.

Which areas are either oversaturated or would be too hard to compete in at this point for a new startup? What other types of products/services are you wary or concerned about?
No market/sector is too saturated and has no room for innovation. Some markets seem to be more challenging than others due to immense competitive landscape (e.g., food delivery, language-learning apps) but still can be the subject of disruption due to a unique value proposition of a new entrant.

How much are you focused on investing in your local ecosystem versus other startup hubs (or everywhere) in general? More than 50%? Less?
OTB is focused on opportunities with links to Central Eastern European talent (with no bias toward any hub in the region), meaning companies that leverage local engineering/entrepreneurial talent in order to build world-class products to compete globally (usually HQ outside CEE).

Which industries in your city and region seem well-positioned to thrive, or not, long term? What are companies you are excited about (your portfolio or not), which founders?
CEE region is recognized for its sizable and highly skilled talent pool in the fields of engineering and software development. The region is well-positioned to build up solutions that leverage deep, unique tech regardless of vertical (especially B2B). Historically, the region was especially strong in AI/ML, voice/speech/NLP technologies, cybersecurity, data analytics, etc.

How should investors in other cities think about the overall investment climate and opportunities in your city?
CEE (including Poland and Warsaw) has always been recognized as an exceptionally strong region in terms of engineering/IT talent. Inherent risk aversion of entrepreneurs has driven, for a number of years, a more “copycat”/local market approach, while holding back more ambitious, deep tech opportunities. In recent years we are witnessing a paradigm shift with a new generation of entrepreneurs tackling problems with unique, deep tech solutions, putting emphasis on global expansion, neglecting shallow local markets. As such, the quality of deals has been steadily growing and currently reflects top quality on global scale, especially on tech level. CEE market demonstrates also a growing number of startups (in total), which is mostly driven by an abundance of early-stage capital and success stories in the region (e.g., DataRobot, Bolt, UiPath) that are successfully evangelizing entrepreneurship among corporates/engineers.

Do you expect to see a surge in more founders coming from geographies outside major cities in the years to come, with startup hubs losing people due to the pandemic and lingering concerns, plus the attraction of remote work?
I believe that local hubs will hold their dominant position in the ecosystem. The remote/digital workforce will grow in numbers but proximity to capital, human resources and markets still will remain the prevalent force in shaping local startup communities.

Which industry segments that you invest in look weaker or more exposed to potential shifts in consumer and business behavior because of COVID-19? What are the opportunities startups may be able to tap into during these unprecedented times?
OTB invests in general in companies with clearly defined technological advantage, making quantifiable and near-term difference to their customers (usually in the B2B sector), which is a value-add regardless of the market cycle. The economic downturn works generally in favor of technological solutions enabling enterprise clients to increase efficiency, cut costs, bring optimization and replace manual labour with automation — and the vast majority of OTB portfolio fits that description. As such, the majority of the OTB portfolio has not been heavily impacted by the COVID pandemic.

How has COVID-19 impacted your investment strategy? What are the biggest worries of the founders in your portfolio? What is your advice to startups in your portfolio right now?
The COVID pandemic has not impacted our investment strategy in any way. OTB still pursues unique tech opportunities that can provide its customers with immediate value added. This kind of approach provides a relatively high level of resilience against economic downturns (obviously, sales cycles are extending but in general sales pipeline/prospects/retention remains intact). Liquidity in portfolio is always the number one concern in uncertain, challenging times. Lean approach needs to be reintroduced, companies need to preserve cash and keep optimizing — that’s the only way to get through the crisis.

Are you seeing “green shoots” regarding revenue growth, retention or other momentum in your portfolio as they adapt to the pandemic?
A good example in our portfolio is Segron, a provider of an automated testing platform for applications, databases and enterprise network infrastructure. Software development, deployment and maintenance in enterprise IT ecosystem requires continuous and rigorous testing protocols and as such a lot of manual heavy lifting with highly skilled engineering talent being involved (which can be used in a more productive way elsewhere). The COVID pandemic has kept engineers home (with no ability for remote testing) while driving demand for digital services (and as such demand for a reliable IT ecosystem). The Segron automated framework enables full automation of enterprise testing leading to increased efficiency, cutting operating costs and giving enterprise customers peace of mind and a good night’s sleep regarding their IT infrastructure in the challenging economic environment.

What is a moment that has given you hope in the last month or so? This can be professional, personal or a mix of the two.
I remain impressed by the unshakeable determination of multiple founders and their teams to overcome all the challenges of the unfavorable economic ecosystem.

Sep
09
2020
--

Xometry raises $75M Series E to expand custom manufacturing marketplace

When companies need to find manufacturers to build custom parts, it’s not always an easy process, especially during a pandemic. Xometry, a seven-year-old startup based in Maryland, has built an online marketplace where companies can find manufacturers across the world with excess capacity to build whatever they need. Today, the company announced a $75 million Series E investment to keep expanding the platform.

T. Rowe Price Associates led the investment, with participation from new firms Durable Capital Partners LP and ArrowMark Partners. Previous investors also joined the round, including BMW i Ventures, Greenspring Associates, Dell Technologies Capital, Robert Bosch Venture Capital, Foundry Group, Highland Capital Partners and Almaz Capital . Today’s investment brings the total raised to $193 million, according to the company.

Company CEO and co-founder Randy Altschuler says Xometry fills a need by providing a digital way of putting buyers and manufacturers together with a dash of artificial intelligence to put the right combination together. “We’ve created a marketplace using artificial intelligence to power it, and provide an e-commerce experience for buyers of custom manufacturing and for suppliers to deliver that manufacturing,” Altschuler told TechCrunch.

The kind of custom pieces that are facilitated by this platform include mechanical parts for aerospace, defense, automotive, robotics and medical devices — what Altschuler calls mission-critical parts. Being able to put companies together in this fashion is particularly useful during COVID-19 when certain regions might have been shut down.

“COVID has reinforced the need for distributed manufacturing and our platform enables that by empowering these local manufacturers, and because we’re using technology to do it, as COVID has unfolded […] and as continents have shut down, and even specific states in the United States have shut down, our platform has allowed customers to autocorrect and shift work to other locations,” he explained

What’s more, companies could take advantage of the platform to manufacture critical personal protective equipment. “One of the beauties of our platform was when COVID hit customers could come to our platform and suddenly access this tremendous amount of manufacturing capacity to produce this much-needed PPE,” he said.

Xometry makes money by facilitating the sale between the buyer and producer. They help set the price and then make money on the difference between the cost to produce and how much the buyer was willing to pay to have it done.

They have relationships with 5,000 manufacturers located throughout the world and 30,000 customers using the platform to build the parts they need. The company currently has around 350 employees, with plans to use the money to add more to keep enhancing the platform.

Altschuler says from a human perspective, he wants his company to have a diverse workforce because he never wants to see people being discriminated against for whatever reason, but he also says as a company with an international market, having a diverse workforce is also critical to his business. “The more diversity that we have within Xometry, the more we’re able to effectively market to those folks, sell to those folks and understand how they utilize technology. We’re just going to better understand our customer set as we [build a more diverse workforce],” he said.

As a Series E-stage company, Altschuler does not shy away from the IPO question. In fact, he recently brought in new CFO Jim Rallo, who has experience taking a company public. “The market that we operate in is so large, and there’s so many opportunities for us to serve both our customers and our suppliers, and we have to be great for both of them. We need capital to do that, and the public markets can be an efficient way to access that capital and to grow our business, and in the end that’s what we want to do,” he said.

Aug
28
2020
--

Steno raises $3.5 million led by First Round to become an extension of law offices

The global legal services industry was worth $849 billion in 2017 and is expected to become a trillion-dollar industry by the end of next year. Little wonder that Steno, an LA-based startup, wants a piece.

Like most legal services outfits, what it offers are ways for law practices to run more smoothly, including in a world where fewer people are meeting in conference rooms and courthouses and operating instead from disparate locations.

Steno first launched with an offering that centers on court reporting. It lines up court reporters, as well as pays them, removing both potential headaches from lawyers’ to-do lists.

More recently, the startup has added offerings like a remote deposition videoconferencing platform that it insists is not only secure but can manage exhibit handling and other details in ways meant to meet specific legal needs.

It also, very notably, has a lending product that enables lawyers to take depositions without paying until a case is resolved, which can take a year or two. The idea is to free attorneys’ financial resources — including so they can take on other clients — until there’s a payout. Of course, the product is also a potentially lucrative one for Steno, as are most lending products.

We talked earlier this week with the company, which just closed on a $3.5 million seed round led by First Round Capital (it has now raised $5 million altogether).

Unsurprisingly, one of its founders is a lawyer named Dylan Ruga who works as a trial attorney at an LA-based law group and knows first-hand the biggest pain points for his peers.

More surprising is his co-founder, Gregory Hong, who previously co-founded the restaurant reservation platform Reserve, which was acquired by Resy, which was acquired by American Express. How did Hong make the leap from one industry to a seemingly very different one?

Hong says he might not have gravitated to the idea if not for Ruga, who was Resy’s trademark attorney and who happened to send Hong the pitch behind Steno to get Hong’s advice. He looked it over as a favor, then he asked to get involved. “I just thought, ‘This is a unique and interesting opportunity,’ and said, ‘Dylan, let me run this.’ ”

Today the 19-month-old startup has 20 full-time employees and another 10 part-time staffers. One major accelerant to the business has been the pandemic, suggests Hong. Turns out tech-enabled legal support services become even more attractive when lawyers and everyone else in the ecosystem is socially distancing.

Hong suggests that Steno’s idea to marry its services with financing is gaining adherents, too, including amid law groups like JML Law and Simon Law Group, both of which focus largely on personal injury cases.

Indeed, Steno charges — and provides financing — on a per-transaction basis right now, even while its revenue is “somewhat recurring,” in that its customers constantly have court cases.

Still, a subscription product is being considered, says Hong. So are other uses for its videoconferencing platform. In the meantime, says Hong, Steno’s tech is “built very well” for legal services, and that’s where it plans to remain focused.

Aug
27
2020
--

Salesforce confirms it’s laying off around 1,000 people in spite of monster quarter

In what felt like strange timing, Salesforce has confirmed a report in yesterday’s Wall Street Journal that it was laying off around 1,000 people, or approximately 1.9% of the company’s 54,000 strong workforce. This news came in spite of the company reporting a monster quarter on Tuesday, in which it passed $5 billion in quarterly revenue for the first time.

In fact, Wall Street was so thrilled with Salesforce’s results, the company’s stock closed up an astonishing 26% yesterday, adding great wealth to the company’s coffers. It seemed hard to reconcile such amazing financial success with this news.

Yet it was actually something that president and chief financial officer Mark Hawkins telegraphed in Tuesday’s earnings call with industry analysts, although he didn’t come right and use the L (layoff) word. Instead he couched that impending change as a reallocation of resources.

And he talked about strategically shifting investments over the next 12-24 months. “This means we’ll be redirecting some of our resources to fuel growth in areas that are no longer as aligned with the business priority will be now deemphasized,” Hawkins said in the call.

This is precisely how a Salesforce spokesperson put it when asked by TechCrunch to confirm the story. “We’re reallocating resources to position the company for continued growth. This includes continuing to hire and redirecting some employees to fuel our strategic areas, and eliminating some positions that no longer map to our business priorities. For affected employees, we are helping them find the next step in their careers, whether within our company or a new opportunity,” the spokesperson said.

It’s worth noting that earlier this year, Salesforce CEO Marc Benioff pledged there would be no significant layoffs for 90 days.

The 90-day period has long since passed and the company has decided the time is right to make some adjustments to the workforce.

It’s worth contrasting this with the pledge that ServiceNow CEO Bill McDermott made a few weeks after the Benioff tweet, promising not to lay off a single employee for the rest of this year, while also pledging to hire 1,000 people worldwide the remainder of this year, while bringing in 360 summer interns.

Aug
24
2020
--

Sutter Hill strikes ice-cold, $2.5B pre-market return with Snowflake’s IPO filing

Today is the day for huge VC returns.

We talked a bit about Sequoia’s coming huge win with the IPO of game engine Unity this morning. Now, Sequoia might actually have the second largest return among companies filing to go public with the SEC today.

Snowflake filed its S-1 this afternoon, and it looks like Sutter Hill is going to make bank. The long-time VC firm, which invests heavily in the enterprise space and generally keeps a lower media profile, is the big winner across the board here, coming out with an aggregate 20.3% stake in the data management platform, which was last privately valued at $12.4 billion earlier this year. At its last valuation, Sutter Hill’s full stake is worth $2.5 billion. My colleagues Ron Miller and Alex Wilhelm looked a bit at the financials of the IPO filing.

Sutter Hill has been intimately connected to Snowflake’s early build-out and success, providing a $5 million Series A funding back in 2012, the year of the company’s founding, according to Crunchbase.

Now, there are some caveats on that number. Sutter Hill Ventures (aka “the fund”) owns roughly 55% of the firm’s total stake, with the balance owned by other entities owned by the firm’s management committee members. Michael Speiser, the firm’s partner who sits on Snowflake’s board, owns slightly more than 10% of Sutter Hill’s stake directly himself according to the SEC filing.

In addition to Sutter Hill, Sequoia also got a large slice of the data computing company: its growth fund is listed as having an 8.4% stake in the coming IPO. That makes for two Sequoia Growth IPOs today — a nice way to start the week this Monday afternoon.

Finally, Altimeter Capital, which did the Series C, owns 14.8%; ICONIQ owns 13.8%; and Redpoint, which did the Series B, owns 9.0%.

To see the breakdown in returns, let’s start by taking a look at the company’s share price and carrying values for each of its rounds of capital:

On top of that, what’s interesting is that Snowflake broke down the share purchases by firm for the last four rounds (D through G-1) the company fundraised:

That level of detail actually allows us to grossly compare the multiples on invested capital for these firms.

Sutter Hill, despite owning large sections of the company early on, continued to buy up shares all the way through the Series G, investing an additional $140 million in the later-stage rounds of the company. Adding in the entirety of its $5 million Series A round and a bit from the Series B assuming pro rata, the firm is looking on the order of a 16x return (assuming the IPO price is at least as good as the last round price).

Outside Sutter Hill, Redpoint has the best multiple return profile, given that it only invested $60 million in these later-stage rounds while still maintaining a 9.0% ownership stake. Both Sutter Hill and Redpoint purchased roughly 20% of their overall stakes in these later-stage rounds. Doing some roughly calculating, Redpoint is looking at a return of about 12-13x.

Sequoia’s multiple on investment is capped a bit given that it only invested in the most recent funding rounds. Its 8.4% stake was purchased for nearly $272 million, all of which came in these late-stage rounds. At Snowflake’s last round valuation of $12.4 billion, Sequoia’s stake is valued at $1.04 billion — a return of slightly less than 4x. That’s very good for mezzanine capital, but nothing like the multiple that Sutter Hill or Redpoint got for investing early.

Doing the same back-of-the-envelope math and Altimeter is looking at a better than 6x return, and ICONIQ got 7x. As before, if the stock zooms up, those returns will look all the better (and of course, if the stock crashes, well…)

One final note: The pattern for these last four funding rounds is unusual for venture capital: Snowflake appears to have “spread the love around,” having multiple firms build up stakes in the startup over several rounds rather than having one definitive lead.

Jul
30
2020
--

Buildots raises $16M to bring computer vision to construction management

Buildots, a Tel Aviv and London-based startup that is using computer vision to modernize the construction management industry, today announced that it has raised $16 million in total funding. This includes a $3 million seed round that was previously unreported and a $13 million Series A round, both led by TLV Partners. Other investors include Innogy Ventures, Tidhar Construction Group, Ziv Aviram (co-founder of Mobileye & OrCam), Magma Ventures head Zvika Limon, serial entrepreneurs Benny Schnaider and  Avigdor Willenz, as well as Tidhar chairman Gil Geva.

The idea behind Buildots is pretty straightforward. The team is using hardhat-mounted 360-degree cameras to allow project managers at construction sites to get an overview of the state of a project and whether it remains on schedule. The company’s software creates a digital twin of the construction site, using the architectural plans and schedule as its basis, and then uses computer vision to compare what the plans say to the reality that its tools are seeing. With this, Buildots can immediately detect when there’s a power outlet missing in a room or whether there’s a sink that still needs to be installed in a kitchen, for example.

“Buildots have been able to solve a challenge that for many seemed unconquerable, delivering huge potential for changing the way we complete our projects,” said Tidhar’s Geva in a statement. “The combination of an ambitious vision, great team and strong execution abilities quickly led us from being a customer to joining as an investor to take part in their journey.”

The company was co-founded in 2018 by Roy Danon, Aviv Leibovici and Yakir Sundry. Like so many Israeli startups, the founders met during their time in the Israeli Defense Forces, where they graduated from the Talpiot unit.

“At some point, like many of our friends, we had the urge to do something together — to build a company, to start something from scratch,” said Danon, the company’s CEO. “For us, we like getting our hands dirty. We saw most of our friends going into the most standard industries like cloud and cyber and storage and things that obviously people like us feel more comfortable in, but for some reason we had like a bug that said, ‘we want to do something that is a bit harder, that has a bigger impact on the world.’ ”

So the team started looking into how it could bring technology to traditional industries like agriculture, finance and medicine, but then settled upon construction thanks to a chance meeting with a construction company. For the first six months, the team mostly did research in both Israel and London to understand where it could provide value.

Danon argues that the construction industry is essentially a manufacturing industry, but with very outdated control and process management systems that still often relies on Excel to track progress.

Image Credits: Buildots

Construction sites obviously pose their own problems. There’s often no Wi-Fi, for example, so contractors generally still have to upload their videos manually to Buildots’ servers. They are also three dimensional, so the team had to develop systems to understand on what floor a video was taken, for example, and for large indoor spaces, GPS won’t work either.

The teams tells me that before the COVID-19 lockdowns, it was mostly focused on Israel and the U.K., but the pandemic actually accelerated its push into other geographies. It just started work on a large project in Poland and is scheduled to work on another one in Japan next month.

Because the construction industry is very project-driven, sales often start with getting one project manager on board. That project manager also usually owns the budget for the project, so they can often also sign the check, Danon noted. And once that works out, then the general contractor often wants to talk to the company about a larger enterprise deal.

As for the funding, the company’s Series A round came together just before the lockdowns started. The company managed to bring together an interesting mix of investors from both the construction and technology industries.

Now, the plan is to scale the company, which currently has 35 employees, and figure out even more ways to use the data the service collects and make it useful for its users. “We have a long journey to turn all the data we have into supporting all the workflows on a construction site,” said Danon. “There are so many more things to do and so many more roles to support.”

Image Credits: Buildots

Jul
28
2020
--

ComplyAdvantage nabs $50M for an AI platform and database to detect and stop financial crime

The growth of digital banking has opened up a wealth of opportunities for making the world of finance more accessible and transparent to a greater number of people. But the darker underbelly is that it has also created more avenues for illicit activity to flourish, with some $2 trillion laundered annually but only 1-3% of that sum “caught.”

To help combat that, a London-based startup called ComplyAdvantage, which has built an AI platform and wider database of some 10 million entities to help identify and track those involved in financial crime, is today announcing a growth round of funding of $50 million to expand its reach and operations.

Specifically, the plan will be to use the funding for hiring, to invest in the tools it uses to detect entities and map the relationships between them and to bring on more clients.

“We’ve been focused on more granular analysis and being able to scale to hundreds of millions of searches across our database,” said Charles Delingpole, founder and CEO, said in an interview. “The next phase is more around the network of contacts and more enhanced diligence.” The company today has some 250 staff, mainly in the U.K. and Romania.

The Series C is being led by Ontario Teachers’ Pension Plan Board (Ontario Teachers’), a huge pension plan out of Canada (U.S. $155 billion) that is known as a prolific growth-stage tech investor.  Previous backers Balderton and Index are also in the round. The company has raised $88 million to date, and while it’s not disclosing its valuation, for some context, it was last valued at around $141 million in its last round a year ago, per PitchBook data.

Today, ComplyAdvantage has more than 500 customers, primarily financial institutions using it to meet regulatory compliance requirements as well as to reduce their own exposure and risk, providing some automated services to complement (and potentially replace) some of the manual checks that they make to prove you are who you say you are.

It also has a growing business with other groups that are tracking fraud for their own ends, such as insurance companies trying to stem fraudulent claims and government entities. It also has a number of partners that access its database and use that as part of their own solutions (Quantexa, which announced a big funding round of its own last week, is one of those licensing partners).

“A lot of companies in the wider identity space are powered by our data, even if they don’t disclose it,” Delingpole said.

The company had its start originally focusing on the process of helping banks meet regulatory compliance around fraud detection by ingesting and analysing documents provided by customers ahead of opening accounts, initiating larger transactions with new entities and so on. That has taken on a more targeted purpose in recent years as ComplyAdvantage’s database has grown deeper.

Today the core of the business is based around a central database of known money launderers, human traffickers, terrorists, drug lords and others who exploit financial rails to run illegal operations and make a profit from them.

It’s formed, Delingpole said, by way of “automatically ingesting tens of thousands of data points, from websites, national warning lists, linked real-time databases of companies and various other applications on top of that.” That central database is still growing, and Delingpole believes that it’s not unrealistic for it to run to a much higher number in order to get the most accurate picture possible.

“Although we have 10 million today, we want to cover every company and person one day. We think the right number is 8 billion” — that is, the world’s population. “With that larger database we can solve other kinds of crimes too.”

The startup already has a straight channel through to government agencies, reporting connections and discoveries on behalf of their clients directly to them. And to be clear, although there are now strong data protection measures in place in Europe, when people are linked to illegal activity, that puts them on a list that supersedes that. When someone is suspected and is tipped to authorities, that information is kept private.

While all institutions will continue to have teams of people dedicated to risk analysis and investigations into activity, the idea here is to supercharge that work with more data that helps those investigators tackle the greater scale of data in the world today.

“Detecting financial crime in billions of transactions that take place around the globe has become nearly impossible without the application of data science and machine learning. It is this approach that has made ComplyAdvantage into a leader in the category, and the go-to partner for organizations that seek to automate what are still very often manual or inadequate processes,” said Jan Hammer, a partner at Index Ventures, in a statement.

The longer-term opportunity is to build out ComplyAdvantage’s customer base by leveraging information that the company is already surfacing that might be relevant to other verticals.

Insurance is a key example, Delingpole said. “We already see a mention of a person having defaulted on a loan then making an insurance claim,” he said. “We see credit, fraud and ownership data together.”

This, of course, puts the company into close competition not just with others building credit databases but those building strong AI platforms to leverage data to gain deeper insights into seemingly disparate digital actions and to build better pictures of activity on behalf of their clients. That includes not just partners like Quantexa, but others like Palantir.

The strength here, said Delingpole, is the sheer size of ComplyAdvantage’s database and its very specific focus on financial crime and how that sits for companies that need to police that, both for their own business health and for regulatory reasons. It’s that focus that has attracted investment.

“ComplyAdvantage offers mission-critical technology solutions for combating financial crime and keeping pace with an ever-evolving regulatory landscape,” said Olivia Steedman, senior managing director, TIP, at Ontario Teachers’. “The company is well-positioned to continue its rapid growth as its powerful technology platform transforms the compliance and risk management process for its clients.”

Jul
01
2020
--

Unpacking how Dell’s debt load and VMware stake could come together

Last week, we discussed the possibility that Dell could be exploring a sale of VMware as a way to deal with its hefty debt load, a weight that continues to linger since its $67 billion acquisition of EMC in 2016. VMware was the most valuable asset in the EMC family of companies, and it remains central to Dell’s hybrid cloud strategy today.

As CNBC pointed out last week, VMware is a far more valuable company than Dell itself, with a market cap of almost $62 billion. Dell, on the other hand, has a market cap of around $39 billion.

How is Dell, which owns 81% of VMware, worth less than the company it controls? We believe it’s related to that debt, and if we’re right, Dell could unlock lots of its own value by reducing its indebtedness. In that light, the sale, partial or otherwise, of VMware starts to look like a no-brainer from a financial perspective.

At the end of its most recent quarter, Dell had $8.4 billion in short-term debt and long-term debts totaling $48.4 billion. That’s a lot, but Dell has the ability to pay down a significant portion of that by leveraging the value locked inside its stake in VMware.

Yes, but …

Nothing is ever as simple as it seems. As Holger Mueller from Constellation Research pointed out in our article last week, VMware is the one piece of the Dell family that is really continuing to innovate. Meanwhile, Dell and EMC are stuck in hardware hell at a time when companies are moving faster than ever expected to the cloud due to the pandemic.

Dell is essentially being handicapped by a core business that involves selling computers, storage and the like to in-house data centers. While it’s also looking to modernize that approach by trying to be the hybrid link between on-premise and the cloud, the economy is also working against it. The pandemic has made the difficult prospect of large enterprise selling even more challenging without large conferences, golf outings and business lunches to grease the skids of commerce.

Jun
30
2020
--

Apple device management company Jamf files S-1 as it prepares to go public

Jamf, the Apple device management company, filed to go public today. Jamf might not be a household name, but the Minnesota company has been around since 2002 helping companies manage their Apple equipment.

In the early days, that was Apple computers. Later it expanded to also manage iPhones and iPads. The company launched at a time when most IT pros had few choices for managing Macs in a business setting.

Jamf changed that, and as Macs and other Apple devices grew in popularity inside organizations in the 2010s, the company’s offerings grew in demand. Notably, over the years Apple has helped Jamf and its rivals considerably, by building more sophisticated tooling at the operating system level to help manage Macs and other Apple devices inside organizations.

Jamf raised approximately $50 million of disclosed funding before being acquired by Vista Equity Partners in 2017 for $733.8 million, according to the S-1 filing. Today, the company kicks off the high-profile portion of its journey towards going public.

Apple device management takes center stage

In a case of interesting timing, Jamf is filing to go public less than a week after Apple bought mobile device management startup Fleetsmith. At the time, Apple indicated that it would continue to partner with Jamf as before, but with its own growing set of internal tooling, which could at some point begin to compete more rigorously with the market leader.

Other companies in the space managing Apple devices besides Jamf and Fleetsmith include Addigy and Kandji. Other more general offerings in the mobile device management (MDM) space include MobileIron and VMware Airwatch among others.

Vista is a private equity shop with a specific thesis around buying out SaaS and other enterprise companies, growing them, and then exiting them onto the public markets or getting them acquired by strategic buyers. Examples include Ping Identity, which the firm bought in 2016 before taking it public last year, and Marketo, which Vista bought in 2016 for $1.8 billion and sold to Adobe last year for $4.8 billion, turning a tidy profit.

Inside the machine

Now that we know where Jamf sits in the market, let’s talk about it from a purely financial perspective.

Jamf is a modern software company, meaning that it sells its digital services on a recurring basis. In the first quarter of 2020, for example, about 83% of its revenue came from subscription software. The rest was generated by services and software licenses.

Now that we know what type of company Jamf is, let’s explore its growth, profitability and cash generation. Once we understand those facets of its results, we’ll be able to understand what it might be worth and if its IPO appears to be on solid footing.

We’ll start with growth. In 2018 Jamf recorded $146.6 million in revenue, which grew to $204.0 million in 2019. That works out to an annual growth rate of 39.2%, a more than reasonable pace of growth for a company going public. It’s not super quick, mind, but it’s not slow either. More recently, the company grew 36.9% from $44.1 million in Q1 2019 to $60.4 million in revenue in Q1 2020. That’s a bit slower, but not too much slower.

Turning to profitability, we need to start with the company’s gross margins. Then we’ll talk about its net margins. And, finally, adjusted profits.

Gross margins help us understand how valuable a company’s revenue is. The higher the gross margins, the better. SaaS companies like Jamf tend to have gross margins of 70% or above. In Jamf’s own case, it posted gross margins of 75.1% in Q1 2020, and 72.5% in 2019. Jamf’s gross margins sit comfortably in the realm of SaaS results, and perhaps even more importantly are improving over time.

Getting behind the curtain

When all its expenses are accounted for, the picture is less rosy, and Jamf is unprofitable. The company’s net losses for 2018 and 2019 were similar, totalling $36.3 million and $32.6 million, respectively. Jamf’s net loss improved a little in Q1, falling from $9.0 million in 2019 to $8.3 million this year.

The company remains weighed down by debt, however, which cost it nearly $5 million in Q1 2020, and $21.4 million for all of 2019. According to the S-1, Jamf is sporting a debt-to-equity ratio of roughly 0.8, which may be a bit higher than your average public SaaS company, and is almost certainly a function of the company’s buyout by a private equity firm.

But the company’s adjusted profit metrics strip out debt costs, and under the heavily massaged adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) metric, Jamf’s history is only one of rising profitability. From $6.6 million in 2018 to $20.8 million in 2019, and from $4.3 million in Q1 2019 to $5.6 million in Q1 2020. with close to 10% adjusted operating profit margins through YE 2019.

It will be interesting to see how the company’s margins will be affected by COVID, with financials during the period still left blank in this initial version of the S-1. The Enterprise market in general has been reasonably resilient to the recent economic shock, and device management may actually perform above expectations given the growing push for remote work.

Completing the picture

Something notable about Jamf is that it has positive cash generation, even if in Q1 it tends to consume cash that is made up for in other quarters. In 2019, the firm posted $11.2 million in operational cash flow. That’s a good result, and better than 2018’s $9.4 million of operating cash generation. (The company’s investing cash flows have often run negative due to Jamf acquiring other companies, like ZuluDesk and Digita.)

With Jamf, we have a SaaS company that is growing reasonably well, has solid, improving margins, non-terrifying losses, growing adjusted profits, and what looks like a reasonable cash flow perspective. But Jamf is cash poor, with just $22.7 million in cash and equivalents as of the end of Q1 2020 — some months ago now. At that time, the firm also had debts of $201.6 million.

Given the company’s worth, that debt figure is not terrifying. But the company’s thin cash balance makes it a good IPO candidate; going public will raise a chunk of change for the company, giving it more operating latitude and also possibly a chance to lower its debt load. Indeed Jamf notes that it intends to use part of its IPO raise to “to repay outstanding borrowings under our term loan facility…” Paying back debt at IPO is common in private equity buyouts.

So what?

Jamf’s march to the public markets adds its name to a growing list of companies. The market is already preparing to ingest Lemonade and Accolade this week, and there are rumors of more SaaS companies in the wings, just waiting to go public.

There’s a reasonable chance that as COVID-19 continues to run roughshod over the United States, the public markets eventually lose some momentum. But that isn’t stopping companies like Jamf from rolling the dice and taking a chance going public.

Jun
24
2020
--

Dell’s debt hangover from $67B EMC deal could put VMware stock in play

When Dell bought EMC in 2016 for $67 billion it was one of the biggest acquisitions in tech history, and it brought with it a boatload of debt. Since then Dell has been working on ways to mitigate that debt by selling off various pieces of the corporate empire and going public again, but one of its most valuable assets remains VMware, a company that came over as part of the huge EMC deal.

The Wall Street Journal reported yesterday that Dell is considering selling part of its stake in VMware. The news sent the stock of both companies soaring.

It’s important to understand that even though VMware is part of the Dell family, it runs as a separate company, with its own stock and operations, just as it did when it was part of EMC. Still, Dell owns 81% of that stock, so it could sell a substantial stake and still own a majority of the company, or it could sell it all, or incorporate into the Dell family, or of course it could do nothing at all.

Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy, thinks this might just be about floating a trial balloon. “Companies do things like this all the time to gauge value, together and apart, and my hunch is this is one of those pieces of research,” Moorhead told TechCrunch.

But as Holger Mueller, an analyst with Constellation Research, points out, it’s an idea that could make sense. “It’s plausible. VMware is more valuable than Dell, and their innovation track record is better than Dell’s over the last few years,” he said.

Mueller added that Dell has been juggling its debts since the EMC acquisition, and it will struggle to innovate its way out of that situation. What’s more, Dell has to wait on any decision until September 2021 when it can move some or all of VMware tax-free, five years after the EMC acquisition closed.

“While Dell can juggle finances, it cannot master innovation. The company’s cloud strategy is only working on a shrinking market and that ain’t easy to execute and grow on. So yeah, next year makes sense after the five-year tax-free thing kicks in,” he said.

In between the spreadsheets

VMware is worth $63.9 billion today, while Dell is valued at a far more modest $38.9 billion, according to Yahoo Finance data. But beyond the fact that the companies’ market caps differ, they are also quite different in terms of their ability to generate profit.

Looking at their most recent quarters each ending May 1, 2020, Dell turned $21.9 billion in revenue into just $143 million in net income after all expenses were counted. In contrast, VMware generated just $2.73 billion in revenue, but managed to turn that top line into $386 million worth of net income.

So, VMware is far more profitable than Dell from a far smaller revenue base. Even more, VMware grew more last year (from $2.45 billion to $2.73 billion in revenue in its most recent quarter) than Dell, which shrank from $21.91 billion in Q1 F2020 revenue to $21.90 billion in its own most recent three-month period.

VMware also has growing subscription software (SaaS) revenues. Investors love that top line varietal in 2020, having pushed the valuation of SaaS companies to new heights. VMware grew its SaaS revenues from $411 million in the year-ago period to $572 million in its most recent quarter. That’s not rocketship growth mind you, but the business category was VMware’s fastest growing segment in percentage and gross dollar terms.

So VMware is worth more than Dell, and there are some understandable reasons for the situation. Why wouldn’t Dell sell some VMware to lower its debts if the market is willing to price the virtualization company so strongly? Heck, with less debt perhaps Dell’s own market value would rise.

It’s all about that debt

Almost four years after the deal closed, Dell is still struggling to figure out how to handle all the debt, and in a weak economy, that’s an even bigger challenge now. At some point, it would make sense for Dell to cash in some of its valuable chips, and its most valuable one is clearly VMware.

Nothing is imminent because of the five-year tax break business, but could something happen? September 2021 is a long time away, and a lot could change between now and then, but on its face, VMware offers a good avenue to erase a bunch of that outstanding debt very quickly and get Dell on much firmer financial ground. Time will tell if that’s what happens.

Powered by WordPress | Theme: Aeros 2.0 by TheBuckmaker.com