OpenPages: a restart that finished strong

Contact: Brenon Daly

In the startup world, a restart rarely goes anywhere. What typically happens is a company swaps one failing business plan for another, with the inevitable wind-down delayed only by a fresh round of capital. Yet that’s not the case with OpenPages, which secured a solid exit with its sale to IBM after completely overhauling its business.

OpenPages, which sells software for the governance, risk and compliance (GRC) market, has virtually nothing in common with the company that started out in 1996. As its name implies, OpenPages was originally a content management vendor. The firm survived the dot-com bust, but only after trimming its headcount from more than 300 down to 15. In the aftermath, it also switched to Plan B for the business: GRC.

Although the initial draw to the GRC space was Sarbanes-Oxley, OpenPages found success in the broader market. By 2006, Sarbanes-Oxley only accounted for about 15% of revenue at the firm. As it recast its business, OpenPages also recapitalized the business. It raised some $10m in 2004 and added another $10m in 2007. (Back in the Bubble Era, it had raised about $60m from investors.)

The sale to IBM makes a fair amount of sense, both strategically and financially. Big Blue and OpenPages have been partners for at least three years. In addition to OpenPages’ technology fitting well with the BI portfolio IBM acquired with Cognos, there’s also a large chunk of services revenue that Big Blue can pocket around an OpenPages implementation. (OpenPages has some 140 customers.)

And, at least as we understand the deal, the exit valued OpenPages at a healthy 5 times its estimated $35m in sales. (Both the price and the valuation line up almost exactly with the other large GRC deal of the year, EMC’s purchase of Archer Technologies back in January.) In our view, whatever valuation OpenPages got should probably be viewed as a rich one when we consider the fact that the company nearly died penniless earlier in its life.

In the dark on Big Blue’s buys

Contact: Brenon Daly

At the risk of stepping into a Kantian dialectic on ‘materiality,’ we can’t help but comment on the fact that when IBM does a deal – even a semi-large deal – mum’s the word. So far this year, Big Blue has picked up two companies that were large enough to consider going public at some point, with each acquisition costing the company around $400m in cash (according to our estimates). Yet in both the purchase of Initiate Systems and BigFix, IBM declined to disclose the price.

Viewed from the Big Blue side, it’s understandable that a startup like Initiate or BigFix, both of which were generating less than $100m in sales, is hardly a significant addition to a tech giant that’s going to post about $100bn in sales this year. Further, even though $400m sounds like a lot of money to most of us, we have to remember that IBM generates that much in cash roughly every two weeks. So, the thinking goes, Big Blue is well within its rights to not disclose ‘immaterial’ transactions. (That’s a view shared by Apple, for instance, which we have taken to task in the past for being run more like a private fiefdom than a public company.)

However, as is often the case in arguments based on relativism, there’s a distinct lack of accountability in it. After all, IBM is spending other people’s money. Shareholders own the company and, at least theoretically, the executives and management at the company – including all those who had a hand in the deals – work for shareholders.

Not to get overly sanctimonious about it, but in deals like Initiate and BigFix, IBM’s true owners are in the dark about how their employees are spending their money. And we’re not talking about dipping into the petty cash jar, but emptying hundreds of millions of dollars from the corporate treasury. That seems to us to be a fairly significant event. puts together pieces on Jigsaw

by Brenon Daly

Just three months after raised $575m in a convertible note offering, the CRM vendor is dipping into its treasury for the largest deal in its history. The $142m purchase price for Jigsaw Data is more money than spent, collectively, on its previous seven acquisitions. (Add to that, there’s a potential $14m earnout that Jigsaw could pocket.) Yet, even after it pays for this pickup, will still have more than $1bn in cash on hand. The transaction is expected to close this quarter.

We understand that Jigsaw finished up last year with about $18m in revenue, and indicated that it was expecting $17-22m in non-GAAP revenue from Jigsaw for the three quarters that the company will be on the books this fiscal year. According to our calculations, is valuing Jigsaw at roughly the same level that the target is currently valued by public investors, at least on one basis metric. is paying about 7.9 times trailing sales for Jigsaw while its own market cap is about 8.3 times trailing sales. (Of course, shares of the on-demand CRM vendor are currently changing hands at their highest-ever level, having more than doubled over the past year.)

For Jigsaw, the sale to its longtime partner also represents a solid return for its backers, who wrote the checks that funded the company’s growth to 1.2 million members and more than 21 million contact records. Jigsaw’s three investors (El Dorado Ventures, Norwest Venture Partners and Austin Ventures) put in a total of $18m over the past six years. Strictly in terms of money in/money out, that means Jigsaw is returning almost eight times its investment. Not many startups have been able to deliver those kinds of returns recently because they’ve typically been overfunded and exit multiples have increasingly been under pressure.

Nokia browses for an advantage

Contact: Jarrett Streebin

In an effort to increase its appeal in emerging markets, Nokia has bought Novarra, the first of two deals in as many weeks. With the acquisition, Nokia obtains Novarra’s faster and more-efficient browser, which is important in emerging markets where bandwidth limitations exist. Nokia is also playing catch-up with players like Apple and Research In Motion that already have their own browsers.

Nokia ships more than 400 million phones annually, many to customers in emerging markets such as Africa, Asia and South America. Having a fast, low-bandwidth browser like Novarra will enable Nokia to better attract carriers in these regions and with the smartphone craze just starting to take off, the company gains an edge on competitors whose browsers require more bandwidth.

Although the deal value wasn’t released, we understand that Nokia paid roughly four times trailing sales for Novarra. The 10-year-old startup had received $88 million in funding from JK&B Capital, Qualcomm, Fort Washington Capital Partners, Kettle Partners and Colorado Investment Securities, with $50m of this coming in a round in 2007.

This move will also affect Novarra’s rivals such as Opera Software and Mozilla. The impact on Mozilla will be limited because its browser targets 3G smartphones like Nokia’s N900 to provide a rich, unconstrained mobile browsing experience. Opera is currently the market leader in mobile browsing, with more than 50 million active users, many of whom are using Nokia phones. Now, Nokia will have its own browser to compete. Although this will cut Opera’s market share, Vodafone has already announced that it will be preloading Opera on many of its phones in emerging markets. It could be that Vodafone needs a browser of its own, too.

Taps turned off at Liquid Computing

Contact: John Abbott

It looks like Liquid Computing will be the latest hardware startup to shut down due to a lack of funding. The former high-performance computing vendor, founded in 2003, had raised $50m of VC funding over three rounds. Its C round of $8.3m closed as recently as last summer, and was intended to fund a shift in emphasis toward ‘unified computing’ and the development work required to eliminate proprietary hardware so that the Ottawa, Canada-based company’s Liquid Elements software would run instead on industry-standard, Intel-based servers.

However, investors ATA Ventures, Axis Capital, the Business Development Bank of Canada, Export Development Canada, Newbury Ventures and VenGrowth, along with private investor (and chairman of the board) Adam Chowaniec, were apparently unwilling to put in a further funding round, despite all the activity around unified computing stirred up by Cisco Systems and Hewlett-Packard. CEO Vikram Desai and the majority of the 50 employees have left the company. Efforts are being made to sell the intellectual property, though it’s not clear who the likely buyers might be. Cisco, Dell, HP, IBM and Oracle/Sun have already set their own technical directions in this area and are unlikely to be interested.

Previous hardware-oriented startup casualties include Fabric7, Panta Systems and SiCortex – the latter lasted until June 2009 until its VCs similarly lost their nerve. And at the end of last year Verari Systems also ran out of money; its assets were acquired by founder Dave Driggers and the vendor has since reemerged as Verari Technologies. PlateSpin (acquired by Novell in February 2008 for $205m) and RLX Technologies (acquired by HP in October 2005 for an estimated $25m) were both operating in a similar area to Liquid, and all made a similar shift away from their original hardware roots over to software. Egenera and Racemi have also turned themselves into pure software providers and have so far retained their independence.

SGI: buying low and heading higher

Contact: Brenon Daly

For any company looking to be acquired by Silicon Graphics, we have this rather unorthodox suggestion for how to position the business: declare bankruptcy. We’re kidding – but only a bit. In just the past 10 months, SGI has picked up two companies in wind-down sales. Last April, server vendor Rackable Systems bought the assets of SGI in a bankruptcy sale.

When the deal closed the following month, Rackable took on the SGI name. However, since then, the company has fashioned a new and improved performance, at least in the view of Wall Street. Shares of SGI – a vendor that had gone Chapter 11 twice under its previous incarnation – are up almost 140% since the combination of Rackable and SGI closed in May. That’s more than four times the return that the Nasdaq has posted during the same period.

On a smaller scale, SGI was back bottom-feeding again last week. The company purchased assets from COPAN Systems for just $2m. As my colleague Simon Robinson pointed out in his report on the deal, COPAN had struggled to get businesses to buy into its vision of massively consolidated storage arrays for data-archiving purposes. The startup, however, didn’t have the same difficulty in getting VCs to buy into it. COPAN had raised around $110m in backing since opening its doors in 2002.

Informatica parlays MDM bets

Contact: Brenon Daly

Informatica’s purchase of Siperian at the end of January marked the data-integration vendor’s first acquisition of a master data management (MDM) company. However, it wasn’t the first time Informatica has put money into the sector. The company held small stakes of both Purisma, which sold to Dun & Bradstreet for $48m in November 2007, and Initiate Systems, which IBM snared last week for what we heard was $425m. Both investments were tiny, with one source indicating that Informatica put less than $1m into Purisma and less than $5m into Initiate.

Though small, the investments certainly paid off for Informatica, coming at a time when most fulltime VCs are struggling to generate any returns. (Never mind the rather dismal, start-and-stop performance of nearly all other corporate venture programs.) We understand, for instance, that Informatica doubled its money on Initiate in less than a year and a half. Who knows, maybe the company just rolled over the proceeds from the sales of both MDM investments (Purisma and Initiate) into an MDM deal of its own. After all, Siperian was the largest buy that Informatica has ever made.

After dropping into pothole, Segway gets sold

Contact: Brenon Daly

As a rule, we love novelty. And we love it even more when there’s a ridiculous amount of hype – and money – directed toward that novelty, which somehow gets portrayed as something other than a novelty. So imagine our delight when we saw recently that Segway had been sold in what smacks of a scrap sale. The scooter maker, which raked in some $176m in venture backing, announced in mid-January that a UK-based holding company had picked up the firm. No terms were revealed.

Schadenfreude aside, we have to marvel at the craziness that consumed millions of dollars and probably even more engineering hours to solve a problem that never existed. A two-wheeled mode of transportation? Well, it’s pretty hard to top the bicycle, which is arguably the most efficient transportation machine ever created in terms of energy required for motion. That’s certainly not lost on the market. Each year, some 18 million bikes are sold in the US alone, while the Segway counts the total units shipped since its rollout in 2002 at less than 50,000.

Server maker Verari resurfaces under original founder

Contact: John Abbott

We noted last month that Verari Systems had run into trouble, and to avoid bankruptcy was planning to auction off its assets under an Assignment for the Benefit of Creditors agreement. The auction, run by the Credit Management Association, duly took place earlier this month. The successful bidder was none other than an investment group led by original founder Dave Driggers, who acquired ‘substantially’ all of Verari’s corporate and intellectual property assets. The company restarts under the modified name Verari Technologies, with less than one-third of the original headcount of 235, according to our understanding.

There are very few details of the transaction, and not many indications of how the new Verari will be different from – and avoid the same fate as – the old Verari. The fact remains that it’s very hard for a small company to compete in the hardware business against giants like IBM, Hewlett-Packard and Dell. The focus this time will be on datacenter design and optimization services, modular container-based datacenters, blade-based storage and high-performance computing, the vendor said in a statement. The new company now owns all of Verari’s inventory, equipment and technologies, and will immediately start supporting the existing installed base of Verari customers.

High-profile signup David Wright, previously at EMC, took over as CEO in 2006, while Driggers stayed on as CTO. The hints are that Verari will no longer try to compete in the general-purpose server and storage markets but will instead focus on niche segments, particularly those where customers require a degree of customization and consultancy, and work more closely with other industry partners. Those partners could include Cisco, which had been working with Verari on containerized datacenters before the crash. The new Verari will also work on licensing and promoting its patented intellectual property in areas such as system packaging (including blade chassis and containers) and vertical cooling.

Silver Creek comes out golden in sale

Contact: Brenon Daly

Although terms weren’t disclosed in Oracle’s reach for Silver Creek Systems earlier this week, we suspect the startup can claim something that not one of the nine companies that Oracle gobbled up in 2009 can say: it garnered an above-market valuation in the deal. The trade sale also undoubtedly generated a decent return for Silver Creek’s backers, which hasn’t been the case in many recent sales of VC-backed companies.

A pretty lean operation, Silver Creek has raised some $14m since its restart as a data-quality vendor back in 2002 and hasn’t needed to raise money since 2005. We believe Oracle may have ended up paying twice the amount that Silver Creek raised, since we understand there was at least one other bidder. The acquisition essentially formalizes an OEM relationship that the two companies have had since April, as my colleague Krishna Roy noted in her report on the transaction.

Whatever price Silver Creek ended up getting, it’s a notable uptick from last summer, when we were writing about how a startup in a similar market had pulled off an improbable deal that – if everything falls into place and full earnouts are earned – might just make its backers whole again. (See our earlier item on Exeros’ gamble and ultimate sale to IBM.) Also keep in mind that Big Blue only picked up some of the assets of the data discovery startup, not the whole company and its employees, as is the case with Oracle’s reach for Silver Creek. All in all, Oracle’s purchase of Silver Creek is yet another sign that the tech M&A market continues to rebound, even if it hasn’t yet fully recovered.