

VMware Buys AirWatch for $1.54 Billion - uptown
http://dealbook.nytimes.com/2014/01/22/vmware-buys-mobile-security-firm-for-1-54-billion/

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skue
Huh. It's clearly a huge number, but AirWatch just raised a $200MM Series A
(+$25MM add-on) last year on a $1B valuation, and everyone was talking about
them going public. I wonder how happy the investors are with the 50% return on
a 12 month investment?

(And doesn't it show just how insane VC funding is, when you realize that some
of the investors may actually be disappointed?)

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mlyang
I work at the VC that invested in AirWatch last year. We're happy with the
investment given that it was a relatively quick and clean exit given our
typical 3-5+ year exit timeline.

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icewalker
It's definitely not a total win - first, the return isn't actually ~50% given
the $365M in installment payments and assumed unvested equity; second, your
LPs committed capital to your fund expecting a certain IRR over the length of
the fund (7 years i'm guessing? 10?). Getting them a low- to mid-double digit
IRR over 1 year is nice, but it also means that they now have to spend money
figuring out how to redeploy that capital for the next 6 years.

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foobarqux
That's not how VC/PE typically works. Exit capital is returned, not
reinvested.

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icewalker
Sorry I wasn't clear with my pronouns (?) - "they" referred to the LPs, not
Insight. Meaning that now the LPs (not Insight) have to figure out how to
reinvest the capital that was returned.

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jjoe
How's this acquisition strategic for VMware?

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draugadrotten
Speculation: Gartner's recent negative view on VMware's innovation
capabilities caused VMware management to freak out and go out and buy anything
"innovative" that was for sale in the mobility arena. Mobility is hot, and
VMware wants have a piece of the cake.

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hangonhn
That's a really simplistic speculation. VMware management is considerably more
measured than that. VMware has had an End-User-Computing units for years now.
With more computing done on mobile and less on PCs, it stands to reason that
VMware would like to move in that direction too for their EUC group,
especially if the disruption upends the entrenched position Citrix has had on
the PC.

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ajaimk
I work at AirWatch. This a great win for the Atlanta seed ecosystem.

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wil421
You are assuming that AirWatch is going to stay in ATL. What happens when
VMWare wants you guys to move?

I dont know why you still consider yourselves a startup, you guys were
probably a startup in the Wandering Wifi days but I think those times have
past.

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bifftannen
We have AirWatch, and I didn't know they were considered a startup. It really
explains their support knowing this.

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lasonrisa
The support is of good quality or bad?

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bifftannen
Completely lapsed and left that out. Support is very cavalier. If you submit a
web ticket, it can be days before they even look at it. A lot of problems are
just brushed off, you're given a curt "its not a problem with our software"
and that is that. I understand they are at the mercy of the device vendor when
it comes to certain things, for example Apple cutting off device tracking of
WiFi-only iPads.

I really dislike the blackbox aspect of AirWatch itself. You prep the servers,
but they perform the install and the updates. You have to pay for updates out
of a bank of paid hours. For example, you want to go from 5.5 to 5.6. If it
takes an hour and a half, it is taken out of your bank. You also pay for every
device you have checked into AirWatch. It just reeks of double-charging. You
don't get charged if you have a problem stemming from a bug.

I install and maintain much more complicated software. I'd really rather they
give me the update and if it goes awry then I'd call support. It runs on
Windows server, it isn't rocket science.

The initial install support and training was sub-par, too. The same engineer
that performs the install also gives you a basic rundown on the console. Very
quick, and sometimes the best technical people shouldn't also train people on
its usage.

That all being said, I have about 1200 devices in AirWatch. More or less I am
the only person for the deployment and maintenance of these devices. I have
very little complaints about the use of AirWatch, my job would be a lot more
difficult without it.

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hangonhn
If I was an investor, these types of answers are the real gems that I would
look for before making any acquisition.

"That all being said, I have about 1200 devices in AirWatch. More or less I am
the only person for the deployment and maintenance of these devices. I have
very little complaints about the use of AirWatch, my job would be a lot more
difficult without it."

That is value right there.

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mattzito
And in fact, these are the sorts of things that M&A departments at large
companies look for - companies with good market share, a product that drives
value, but perhaps are not perfect on execution (sales, support,
implementation), because that's where the acquirer can add incremental value.

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ffrryuu
I guess the employee is getting screwed?

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ghshephard
Looks like an upround to me, but the question is what the liquidation
preference was, and whether there was any money leftover for the common (I.E.
employees)

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malandrew
You also need to keep in mind that this is an Atlanta-based company and not a
Silicon Valley based one. The employees are likely to have worse contracts
that what you'd find in the Bay Area, especially if the original and seed
investors were local to the Atlanta region or Southeast. I know that term
sheets from Raleigh-Durham investors are typically less favorable than out
here in the Bay Area and I would expect the same in the Atlanta ecosystem.

In secondary funding markets, VCs have far more bargaining power. If you have
real traction and are in those markets, you simply don't raise money there.
You come out to the Bay Area instead where more VCs will compete to invest in
you.

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dclara
Sorry, I don't quite get it. Why are the employees screwed? I know that the
VSs got liquidate first usually. But the employees also have their shares
value raised in their pocket. If the contracts are not favorable, then even if
they go IPO, it's the same for the employees, right? This is different from a
new round of VC investment which may dilute the employees holdings.

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malandrew

        "I know that the VSs got liquidate first usually."
    

That statement is accurate for secondary markets, but for the Bay Area, I'd
say it's more accurate to say "I know that the VSs got liquidate first
_historically_ , but that's not necessarily the default today."

I'm saying that companies raising rounds in secondary markets like Atlanta and
Raleigh typically get less favorable terms than those raising money in Silicon
Valley. They have fewer VCs to choose from and the local VCs have term sheet
expectations more similar to the term sheet expectations in the Bay Area from
several years ago, which are far less favorable to term sheets today. I doubt
that startups in secondary markets could even find investors willing to offer
convertible notes or willing to budge on liquidation preferences.

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dclara
Thank you for your information. Do you mean in Silicon Valley, VCs are rarely
get preferred stocks from the startup company? But why are they offering
convertible notes which to me is more risk for the startup companies than the
VCs?

