Sunday Morning Tech Buzz 10/25: Why some Unicorns are in trouble; SevOne celebrates 10 yrs; IMPACT 2015 Capital Conference November 3rd & 4th

Tom Paine

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(Where I somehow try to answer questions I haven't been able to answer the rest of the week, at a time when I'm least capable of doing so. And sometimes don't finish on time. This week, my excuse is that I made a rare visit to church.)

Well...that's one way to respond when a VC passes... pic.twitter.com/C5WWYnk5KV

— Josh Kopelman (@joshk) October 22, 2015

Also on the First Round Capital front, Uber, which on paper is worth alot to FRC, is said to be talking about raising another $1 billion, possibly pushing its valuation near $70 billion. These reports about Uber, when appearing in the "responsible press", usually turn out to be accurate and often conservative.

Meanwhile, an NYU professor and well-known expert on valuations thinks Uber is only worth about $23.4 billion, approximately. And Fortune looks at the private
company valuation game and why there are so many unicorns now.

The problems with some unicorns is that they are built upon a pile of assumptions,
one stacked on top of another, that can collapse like a house of cards. Its too early to say, but there's a chance that DraftKings and FanDuel may have suffered irreperable damage from the alleged insider dealing scandal at DraftKings, Even if every one is cleared of wrongdoing, it still puts the spotlight on them and its unclear whether states and the federal government will continue to find their games legitimate. The US Attorney for Southern New York subpoenad DraftKings this week, reportedly asking for information about an employee’s activities and potential misuse of inside data.

I don't understand the science behind the Theranos situation as well, but that company's been valued at $9 billion, so there's a lot at stake.

Another unicorn, restaurant search engine Zomato, laid off 300 out off some 3,000 employees globally, the primary targets being people who collect content about restaurants. Technical.ly Philly reported that it ditched Philly entirely, shutting down its 15 person office, consisting of mostly content collectors.

TechCrunch reported that Zomato has raised over $223 million in funding, and in April the company disclosed its $1 billion valuation.

And that's how bubbles get started. Some people have a great deal of money to invest and their hurdle rates (expected returns) are low because interest rate are so historically low. Irrational assumptions, questionable due diligence, and failure to consider possible risk scenarios compound the problem. I'm not really crying for those investors who get burned on some of these deals.

But I won't call it a bubble now because I haven't seen enough blood in the street, as some people say. There have been rounds of layoffs at several area banks and FMC is cutting 800 + employees (some locally), as examples, but I haven't seen it hit much in Philly's tech sector.




SevOne held its first User Conference last week at UDel, though it was fairly small because its customer base is still a concentrated group of large customers and it was closed to the public. And it was fairly quiet, with not a great deal of information coming out of it, probably by design. But it certainly attracted considerable attention. My post on the user conference received amazing traffic on Twitter, though I suspect much of it were from bots set to respond to any mention of SevOne, paticularly after my post was retweeted by SevOne.

But its an exciting time for SevOne, which may or may not have attained unicorn status by now. In terms of dynamic, scalable monitoring of large network performance (and it handles some huge ones) SevOne appears to be ahead of the pack at the moment. And the market for large network management tools is exploding, with the emergence of mobile devices, Internet of Things applications, and the sheer number of devices now in use. SevOne will face big decisions in the next year or two: whether to go public, acquire or be acquired, and how broad its product line should be (right now its rather narrow). As well as tactical decisions about how to manage the products it has.

SevOne also used the occasion to celebrate its tenth anniversary of its founding, holding it at the University of Delaware where the Bakalovs started it. And part of the event was held in its future Delaware head offices at the Star complex on campus.

.@tanyabakalov celebrates 10 years of #SevOne at the new STAR campus office. pic.twitter.com/xZ6YXZ7NbU

— SevOne Inc (@SevOneInc) October 21, 2015

But one other firm that deserves much credit for SevOne's success was quiet; Osage Venture Partners, a fairly small VC at the time, had the vision to get in early. Osage is still in SevOne because it participated in its latest round; I don't know whether it got anything out at the time of Bain's investment snd partial recap.


Just a reminder, and I'll have more info next week, that the IMPACT 2015 Capital Conference, one of PACT's most important annual events, is right around the corner, to be held on November 3rd & 4th at the Ritz-Carleton Philadelphia.

Sunday Morning Tech Fix 10/11/2015: Bubble Up? GE IoT & software moves

Tom Paine

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(Where I somehow try to answer questions I haven't been able to answer the rest of the week, at a time when I'm least capable of doing so.)

I'll be periodically posting updates on the so-called 'bubble scare' of 2015, trying to emphasize facts rather than gossip, mostly as it concerns private equity and private tech companies.

As always in a hot market, there are people who want to keep talking it up, and others who want to talk it down to cool off values a bit. And some (few) are straight shooters.

Fortune's Dan Primack, on his visit to Silicon Valley last week, said of the investment class there, speaking primaarily of unicorns (private startups valued at $1 billion or more), "As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear."

Mattermark's (an emerging business information and research company) Danielle Morrill gets specific and names some unicorns that might be in trouble, including the FanDuel/DraftKings duo that have been spending huge amounts to batter each other's brains out. Some suggest that merging the two is the only solution.

Boston or Wilmington-based SevOne, which has very legitimate value, announced it had closed its latest round at $50 million (the Form D filed before the close indicated up to $60 million) and failed to indicate clearly to anyone whether it had reached unicorn status, which it was on the brink of. Which is probably just as well, since the attention that brings you may be more negative than positive now.

Of course, all of this is unicorn talk, and Philadelphia is neither Silicon Valley or New York. So I will try to focus future installmments on somewhat more micro indicators most of us need to know about.

I'm still trying to decipher all the moving parts involved in GE's enormous announcents about both its Internet of Things platform and its Predix software venture. Such as what it means for PTC's ThingWorx, which has a big role to play at least in IoT (not sure about Predix), and what it means for ERP players and the software industry in general. I think ThingWorx has to be fairly quiet, following the interests of GE and its own corporate parent.

I also noticed that ThingWorx had a presence at AWS re:Invent 2015, where it was a sponsor, though it wasn't prominently mentioned in AWS' releaeses about its new IoT platform, which was built upon the acqusition of anoter IoT platform vendor. But GE says it outsources much of its processing to AWS.


Also, waiting for some clarifcaion on Quentin Clark's new role at SAP. On SAP's website for at least the past few days, he has been listed as Chief Business Officer, rather than CTO (his prior position) though no trace of an external announcement has been found. SAP did post about two other significant appointments last week.

With new round, SevOne nears billion dollar valuation; Where in the world is it headquartered?

Tom Paine

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Note 9/24: A question came up in writing this article and the response to my original headline: "With new round, SevOne nears billion dollar valuation; Boston now HQ."

Now I am not an attorney possessing the brainpower capable of determining what constitutes a company's headquarters. And issuing press releases using the dateline of a certain city does not determine where a company's headquarters is either.

However, I have noticed over the past year or so the buildup of SevOne administrative staff in the Boston area (the number according to LinkedIn is 48). And though I'm not sure what this overhead is doing, no doubt some of this represents the owners' interests (almost all investors are now Boston-based) and some the network technology hiearchy that is concentrated in the area.

And a little birdie who is an awfully well-placed source told me twice that "SevOne’s corporate headquarters is in Boston."

Now I know certainly some companies have "administrative headquarters" and "operational headquarters" and I think I'll leave it there.

But I am struck by the fact that the Boston Brahmins of the networking tech world are struggling to keep up with a pair of brilliant renegades in Delaware who, starting with little support, and a few friends and a tiny VC firm as investors, may be turning the networking world upside down.

And certainly it is important to the people of Delaware to hold on to some of what the Bakalovs created.





I got off the phone a while ago with SevOne CMO Jim Melvin, after the company announced a new round, not yet closed, that might value the company around one billion dollars. I think Melvin, a former CEO himself who CEO Jack Sweeney brought in, is more influential and knowledgeable about inside stuff than the average CMO might be. He speaks with caution, however.

Jim Melvin

SevOne, whose hardware and software helps companies monitor network performance, shows its official headquarters now as Boston, which is probably the center of the East Coast network technology industry, as well as the location of most of SevOne's investors and many of its executives. However, its not clear when the headquarters move occurred. Its investment in people and resources in Delaware and the Philadelphia region remain significant.

Melvin emphasized that the explosion in mobile devices and the need to orchestrate the flow of digital information from them has created overwhelming demand for its product architechture-which may be the only one that can scale sufficiently now to meet the demand.

Melvin mentioned that some of SevOne's customer are sometimes competitors, including perhaps Verizon or Comcast (my guesses entirely), but said SevOne tried to work with them over time to make them partners rather than competitors. My understanding has been there are important pieces of the networking solution puzzle that only SevOne has at this point, and others need it for these. Specifically, I asked Melvin whether SevOne would be working with Comcast on its newly planned business services offering, and he declined to answer, other than referring to SevOne's history with Comcast as one of its most valued customers.

As far as other competitors, Melvin doesn't think the old-line network technology vendors can keep up.

Melvin gave no specific answer on the 2015 outlook, other than to say that year end results year-over-year might look roughly the same as 2014. Annual revenue grew to $64.5M in 2014 from $39.5M in 2013, a 66% increase. So that might mean 2015 revenue could exceed $100 million, which would make a 10:1 price to sales valuation seem reasonable even given some current compression in private equity values for tech firms.

In my last conversation with Melvin in the Spring, he indicated that SevOne was sacrificing short-term profitability for growth. I don't know were the level of losses stands now, or how the bottom line effects SevOne's valuation.


It seems to me that at the moment this is largely a network game, and the biggest network that ties the most things together wins. This might even require more capital than currently committed. It does not mean, however, that the network advantage SevOne seeks to gain would be insurmountable. When you look at how quickly Amazon Web Services transformed traditional computing platforms, there is no reason to think SevOne's domain couldn't see the same rapid change. In fact, I suggest that AWS could become SevOne's principal competitor. (Note: on the eve of AWS re:Invent 2015, I would't want to fail to mention that SevOne and AWS have a technology alliance. The alliance is intended "to help enable our customers to monitor their IT performance from the datacenter to the cloud," SevOne says.

The current round could raise as much as $60 million, the Wall Street Journal reported, with Westfield Capital Management the only newly committed investor along with current investors Bain Capital Ventures, Bain-affiliated Brookside Capital, early investor Osage Venture Partners of Bala Cynwyd, and HarbourVest Partners. Some other prominent individual investors from the Philly area had previously been taken out, I believe. The new round may still attract other investors.

Melvin says he's not focused on such things, but the last-minute maneuvering described in the Journal makes it sound as if SevOne is bucking for a spot in the so-called Unicorn Club of billion dollar private company valuations, though that club has grown exponentially recently.

Prior to this round, SevOne had raised $153.5 million, mostly from the $150 million from Bain in the last round.

SevOne was founded in Newark, DE in 2005 by Vess and Tanya Bakalov. The company says it "continues to invest in its Delaware roots, constructing a 48,000 square foot, state-of-the-art research and development center on the University of Delaware's Science, Technology and Advanced Research (STAR) Campus in Newark, Delaware. The STAR campus facility opens in October, and will build upon the company’s vision of developing next-generation technologies and pushing the boundaries of digital infrastructure management for SevOne customers."

U of Delaware "Star" development center

Update 9/24: A Form D filed yesterday by SevOne showed it has raised $47 million out of the $60 million the round is open for (I think the amount raised has grown to $50 million.) VT Technology Investors joined on as an additional investor.