Oracle grabs Zenedge as it continues to beef up its cloud security play


Oracle announced yesterday that it intends to acquire Zenedge, a 4-year old hybrid security startup. They didn’t reveal a purchase price.

With Zenedge, Oracle gets a security service to add it to its growing cloud play. In this case, the company has products to protect customers whether in the cloud, on-prem or across hybrid environments.

The company offers a range of services from web application firewalls to distributed denial of service (DDoS) attack mitigation, bot management, API management and malware prevention. In addition, they operate a Security Operations Center (SOC) to help customers monitor their infrastructure against attack. Their software and the SOC help keep watch on over 800,000 websites and networks across the world, according to information supplied by Oracle.

Oracle says it will continue to build out Zenedge’s product offerings. “Oracle plans to continue investing in Zenedge and Oracle’s cloud infrastructure services. We expect this will include more functionality and capabilities at a quicker pace,” Oracle wrote in an FAQ on the deal (.pdf) published on their website.

Oracle’s recent acquisition history. Source: Crunchbase

Just this week Oracle announced that it was expanding its automation capabilities on its Platform as a Service offerings from databases to a range of areas including security. Ray Wang, founder and principal analyst at Constellation Research says the company is a good match as it also uses automation and artificial intelligence in its solution.

“Oracle is beefing up its security offerings in the cloud. They have one of the strongest cyber security platforms,” Wang told TechCrunch. “They also have a ton of automation that fits Oracle’s theme of autonomous,” he added.

Oracle is far behind cloud rivals as it came late to the game. Just this week, the company announced plans to build a dozen data centers around the world over the next two years. They are combining an aggressive acquisition strategy and rapid data center expansion in an effort to catch up with competitors like AWS, Microsoft and Google.

Zenedge launched in 2014 and has raised $13.7 million, a modest amount for a cloud-based security service. Oracle says customers and partners can continue to deal with Zenedge using their existing contacts.

Featured Image: Justin Sullivan/Getty Images

Consolidation in the cloud as OpenText buys Hightail and Carbonite grabs Mozy from Dell


Back in the early 2000s before Dropbox was gleam in Drew Houston’s eye, sharing large files was a huge challenge. Email services limited attachment size because bandwidth and storage were both expensive and FTP required a certain level of technical acumen. YouSendIt tried to resolve that problem by providing a way to share large files in the days before the cloud became a thing.

The company, which became Hightail in 2013, was sold to Open Text today for an undisclosed amount. Open Text is a highly acquisitive Canadian content management company. It operates almost like a private equity play, buying up older companies and living off of the assets, while incorporating them into the Open Text family of products.

Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, says Hightail is still solving that edge problem of moving large files around the internet, which has remained a problem even in the age of cloud storage. “Hightail was one of the few — though it largely went unnoticed — that focused on that problem. They essentially rethought FTP and filled a niche, particularly for creative media workers,” Pelz-Sharpe told TechCrunch.

The company counts 5.5 million customers with a strong emphasis on that creative professional market in advertising and marketing, which often have hefty files to move around between teams and clients. Hightail still provides them that ability.

Mark J. Barrenechea, who holds several titles at OpenText including vice chairman, CEO and CTO, says the addition of Hightail helps them meet yet another content management use case. “The acquisition of Hightail underscores our commitment to delivering differentiated content solutions in the cloud that enable marketers and creative professionals to share, produce, and securely collaborate on digital content,” Barrenechea said in a statement.

This could allow them to compete with Adobe, at least on the file sharing side. Adobe has a big stake in the creative market and providing solutions for creating and sharing the large files they produce.

Today’s acquisition comes on the heels of the sale of another early cloud company when Dell sold Mozy to Carbonite yesterday for $145 million. Mozy, a cloud backup service, which launched in 2005, was sold to EMC in 2007 for $76 million. You may recall that Dell purchased EMC in Oct 2015 for $67 billion. That deal closed in September 2016.

Mohamad Ali, Carbonite CEO and president, sees this deal as a way to expand Carbonite’s family of products. “This deal provides Mozy customers scalable options for the future and gives Carbonite a broader base to which we offer our solutions,” Ali said in statement.

Tony Byrne, founder and principal analyst at the Real Story Group says that both of these deals are indicative of consolidation in the online storage space. “Many of us hoped that these smaller niche players could provide pluggable services to other applications but in the end the big vendors just did that themselves. And they were too small and thin to compete with Box and Dropbox in the standalone market,” Byrne explained.

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Time Warner will be fine even if the AT&T acquisition doesn’t go through


Time Warner will be fine even if the government blocks the bid from AT&T to buy the company.

That’s the word from John Martin, the free-wheeling chief executive of Time Warner subsidiary, Turner Inc., who was speaking at the Code Media conference in Huntington Beach.

For the record, Martin says that the government’s position on the acquisition offer is “stupid” and that it will likely lose its case. “It is a massive misallocation of resources and capital to fight this thing,” Martin said.  “They are going to lose.”

Martin argued that while the value of AT&T had remained flat after news of the acquisition broke, Amazon and Google added roughly the equivalent of the telecommunications company’s market cap over the same period. Meanwhile Facebook’s valuation grew to the size of two Time Warners, Martin said.

“So if you’re the government and you’re worried about fixing the competitive landscape, what are you worried about?”

His point was that the competitive landscape would not be harmed by a merger of the two companies.

“In the history of the country, what vertical merger has tilted the landscape of the competitive environment? Let me give you the answer: Zero.”

Still, should for some reason the government make its case, Time Warner could survive… for a time. The company is coming off of its best year across most of its media properties, according to Martin.

“Time Warner is a pretty, stable, big successful company. So I mean, HBO is on fire right now. Warner Brothers had the most successful year in its history in 2017. We did too. Whatever happens happens,” said Martin. “The future is really bright.”

That said, consolidation is the name of the game, and should Time Warner not be bought by AT&T it would need to find another acquirer eventually.

Martin and his fellow panelist, A+E Networks chairman and chief executive Nancy Dubuc noted that in this new media landscape size does matter. They both expected that Viacom would have to reintegrate with CBS — and that observation matters for Martin’s own assessment of Time Warner’s stability.

Billionaire investors Icahn and Deason write blog post slamming Xerox-Fuji deal


Carl Icahn and Darwin Deason are a couple of seasoned billionaire investors, who know a bad deal when they see it, and they definitely don’t like the $6.1 billion deal announced last month to combine Fuji with Xerox. In a blog post published today, they are urging fellow shareholders to reject the offer.

You may recall that it was Icahn and Deason, who together own a 15 percent stake in the printing a copier giant, demanded that Xerox be put up for sale last month. Oh and while they were at it, they also demanded that CEO Jeff Jacobsen be fired immediately. These guys most definitely do not mess around.

But in a case of being careful what you wish for (or demand), Xerox did what it was told, but Icahn and Deason don’t like the terms They believe they unfairly favor Fuji and allows them take Xerox and incorporate it into their company without any assurances that investors like them will get what they see as a fair return.

In a joint statement published on Ichan’s website, the two billionaires did not pull any punches on what they thought of the deal (nothing much, nothing much) when they stated, “The transaction has a tortured, convoluted structure, but it was best summarized by Shigetaka Komori, Fuji’s Chairman and CEO, when he boasted to the Nikkei Asian Review that the “scheme will allow us to take control of Xerox without spending a penny,” they wrote in their blog post.

Neither are they thrilled with the way that Fuji has been run in the past, but beyond governance, it really appears to be an issue of pure economics for the pair. “Beyond the issues of control and governance of our investment going forward, the fundamental economics of this transaction also disproportionately favor Fuji at our expense,” they wrote.

They don’t stop there criticizing the standing partnership deal Xerox and Fuji have had in place for years, writing, “Sadly, as we all know, this is not the first time Xerox has negotiated a dreadful deal with Fuji.” They go onto claim that the terms of that deal have been withheld from shareholders for years. They are clearly not happy campers and they aren’t hiding it.

They close unsurprisingly by asking fellow shareholders to reject the deal. “To put it simply, the current Board of Directors has overseen the systematic destruction of Xerox, and, unless we do something, this latest Fuji scheme will be the company’s final death knell. We urge you – our fellow shareholders – do not let Fuji steal this company from us. There is still tremendous opportunity for us to realize value on our own if we bring in the right leadership,” they wrote.

It’s not often you get such an unfiltered view of how billionaire investors view a deal of this ilk, but in spite of pressing for a sale of Xerox, this is obviously not the deal these men want, and they have made it clear they will fight it tooth and nail.

Featured Image: James Leynse/Getty Images

Billionaire investors Icahn and Deason write blog post slamming Xerox-Fuji deal


Carl Icahn and Darwin Deason are a couple of seasoned billionaire investors, who know a bad deal when they see it, and they definitely don’t like the $6.1 billion deal announced last month to combine Fuji with Xerox. In a blog post published today, they are urging fellow shareholders to reject the offer.

You may recall that it was Icahn and Deason, who together own a 15 percent stake in the printing a copier giant, demanded that Xerox be put up for sale last month. Oh and while they were at it, they also demanded that CEO Jeff Jacobsen be fired immediately. These guys most definitely do not mess around.

But in a case of being careful what you wish for (or demand), Xerox did what it was told, but Icahn and Deason don’t like the terms They believe they unfairly favor Fuji and allows them take Xerox and incorporate it into their company without any assurances that investors like them will get what they see as a fair return.

In a joint statement published on Ichan’s website, the two billionaires did not pull any punches on what they thought of the deal (nothing much, nothing much) when they stated, “The transaction has a tortured, convoluted structure, but it was best summarized by Shigetaka Komori, Fuji’s Chairman and CEO, when he boasted to the Nikkei Asian Review that the “scheme will allow us to take control of Xerox without spending a penny,” they wrote in their blog post.

Neither are they thrilled with the way that Fuji has been run in the past, but beyond governance, it really appears to be an issue of pure economics for the pair. “Beyond the issues of control and governance of our investment going forward, the fundamental economics of this transaction also disproportionately favor Fuji at our expense,” they wrote.

They don’t stop there criticizing the standing partnership deal Xerox and Fuji have had in place for years, writing, “Sadly, as we all know, this is not the first time Xerox has negotiated a dreadful deal with Fuji.” They go onto claim that the terms of that deal have been withheld from shareholders for years. They are clearly not happy campers and they aren’t hiding it.

They close unsurprisingly by asking fellow shareholders to reject the deal. “To put it simply, the current Board of Directors has overseen the systematic destruction of Xerox, and, unless we do something, this latest Fuji scheme will be the company’s final death knell. We urge you – our fellow shareholders – do not let Fuji steal this company from us. There is still tremendous opportunity for us to realize value on our own if we bring in the right leadership,” they wrote.

It’s not often you get such an unfiltered view of how billionaire investors view a deal of this ilk, but in spite of pressing for a sale of Xerox, this is obviously not the deal these men want, and they have made it clear they will fight it tooth and nail.

Featured Image: James Leynse/Getty Images

Raise softly and deliver a big exit


In the world of venture capital, the prospect of a successful “exit” looms large in the minds of investors. A VC’s business model is less about the money that goes into a startup than it is about what comes out. It’s true that most companies fail to exit gracefully, and of those that do, surprisingly few exit by going public. The majority of exits take place through mergers and acquisitions (M&A).

For most investors of this ilk, it’s not always the size of the exit that matters; rather, the focus is placed on the ratio of exit valuation to invested capital (VIC). Crunchbase News has previously covered exits that delivered high VIC ratios — or those that brought “the biggest bang” for the proverbial buck — and we’ve found that mobile and related sectors are particularly fertile ground for high-VIC M&A events.

But there are a couple of more general questions to be asked and answered than in those articles. For instance, from the standpoint of VIC multiples, are larger exits better? And are companies that have raised less venture funding more likely to generate higher multiples? These answers can be found.

But before getting into the weeds, let’s clear out some reminders and disclaimers. We’re not answering the question “Are startups with less venture funding more or less likely to exit?” Crunchbase News has already taken a stab at that question and found that, unless a startup raised less than around $9 million in venture funding, there isn’t a strong correlation between total capital raised and likelihood of being acquired. And like that previous foray into exit data, we’re only looking at mergers and acquisitions because there’s a larger sample set to be found.

If you’re interested in what kind of data we used for this analysis, skip to the end of the post for notes on methodology. If not, read on for answers.

Big exits are better exits for multiples

When it comes to acquisitions, in general, bigger is better if the goal is to deliver a high ratio of valuation to invested capital.

The chart below displays VIC multiple data on the vertical axis and the acquisition value on the horizontal axis. Keep in mind that this chart uses a logarithmic scale (e.g. based on powers of 10) on both axes to include the very broad range of results.

Based on the 225 acquisition events in this data set, there is a positive and statistically significant correlation between the final acquisition price and VIC ratios.

A correlation such as this shouldn’t come as a surprise. The vast majority of companies don’t raise more than a few tens of millions of dollars, and 99 percent of U.S. companies raise less than around $160 million, as Crunchbase News found last May.

So, for most companies, acquisition values over about $50 million are more likely to generate higher multiples. A well-known example would be a company like Nervana, which had raised approximately $24.4 million across three rounds, according to Crunchbase data. Nervana was then acquired by Intel in August 2016 for $350 million, producing a VIC ratio of around 14.34x.

Of course, the tendency for bigger exits to generate bigger returns is just a rough rule of thumb, and there are plenty of cases where big exits don’t correspond to big multiples. Here are two examples:

These latter two examples offer a convenient segue to the penultimate section. There, we’ll explore the relationship between how much money a startup raises, and its ratio of valuation to invested capital at time of exit.

Smaller war chests deliver bigger exits

Dollar Shave Club and Earnest are examples of companies that raised more than $100 million in funding but ended up delivering exits less than the vaunted 10x multiple that most venture investors seem to target. So is it the case that companies with less VC cash lining their pockets tend to deliver higher VIC multiples when they exit? The answer, in short, is yes.

In the chart below, you can find a plot of total equity funding measured against VIC ratios at exit, again using a logarithmic scale for the X and Y axes.

Out of our sample of 225 acquisitions, we find a slight but statistically significant negative correlation between the amount of equity funding a startup has raised and the final VIC ratio.

And here, too, the results shouldn’t be that surprising. After all, as we saw in earlier examples, a lot of venture funding can weigh down a company’s chances of getting a big exit. It’s easier for a startup with $1 million in venture funding to be acquired for $10 million than it is for a company with $100 million in VC backing to exit for $1 billion plus.

Of those companies that managed to raise a lot of money and generate an outsized VIC multiple, many of them are in the life sciences. Again, this isn’t surprising, considering that sectors like biotech, pharmaceuticals and medical devices are incredibly capital-intensive in the U.S. due to long trial periods and the high cost of regulatory compliance. Unlike the mobile sector, where a small amount of capital can go a long way, it usually takes a lot of money to create something of serious value in the life sciences.

Multiples matter, but most exits are still good exits

The goal of investing is to get more money out than you put in. This is true for investors ranging from pre-seed syndicates all the way up to massive sovereign wealth funds. If we want to characterize any exit with less than a 1.0 VIC ratio as “bad” and everything above 1.0 is “good,” then most of the exits in our data set, specifically 88 percent of them, are good. Of course, there’s some sampling and survivorship bias that probably leans in favor of the good side. But regardless, most companies will deliver more value than was put into them, assuming they can find the exit.

But assuming a company does find a buyer, we’ve found some factors correlated to higher VIC multiples. Bigger deals correspond to bigger multiples, and companies with less capital raised can often deliver bigger returns to investors.

So while venturing out, it’s always important to keep an eye on the exit.

Methodology: A dive into exit data

There are a number of places we could have started our analysis, and we opted for a fairly conservative approach. Using data from Crunchbase, we started with the set of all U.S.-based companies founded between 2003 and today. (This is what Crunchbase News has been calling “the Unicorn Era,” in homage to Aileen Lee’s original definition for the new breed of billion-dollar private companies.)

To ensure that we’re working with the fullest-possible funding record, we filtered out all companies that didn’t raise funds at the “seed or angel stage.” We further filtered out companies that have missing round data. (For example, having a known Series A round, a known Series C round, but missing any record of a Series B round.) Startups that raised equity funding rounds with no dollar-volume figure associated with it were also excluded.

We finally merged this set of companies with Crunchbase’s acquisition data to ultimately produce a table of acquired companies, the amount of equity funding they raised prior to acquisition, the name of the company that bought the startup and the amount of money paid in the deal. Again, by starting with acquired companies for which Crunchbase has relatively complete funding records, the resulting set of 225 M&A events, while small, is more likely to produce a more robust and defensible set of findings.

Illustration: Li-Anne Dias

Featured Image: Li-Anne Dias

What Silicon Valley tech VCs get wrong about consumer investing


When I began fundraising for CircleUp six years ago, I encountered many investors whose eyes would glaze over when I mentioned “consumer.”

These investors would fidget uncomfortably or drop their gaze when I explained that our platform would only provide capital to small CPG companies. I would often hear the skeptical comments, such as, “an energy bar company can’t really get that big,” “baby food isn’t scalable,” and my personal favorite, “I can’t name a single consumer company” (real quote from a VC).

Today, of course, the tone is much different. Scroll through tech news and you’ll see everything from Greylock Partners singing the praises of CPG startups, Sequoia’s Michael Moritz joining the board of Charlotte Tilbury, to Lightspeed Ventures coinvesting with VMG Partners, a top mid-market consumer firm.

Alongside blockchain and AI, “technology-enabled” CPG startups are now a bona fide trend for Silicon Valley VCs. The uptick in tech VC dollars going to the CPG market is partly because tech investing is brutally competitive and saturated, and largely because these VCs are awakening to the strong historical returns in CPG, especially with the trend leaning towards small brands stealing market share.

Consumer is a massive market – about 3x the size of tech, as seen below.

Despite the size of the market, the early-stage has historically been underserved by investors due to market inefficiencies like the geographic dispersion of brands and a lack of structured information sources (i.e. there is no Silicon Valley for consumer, and certainly no Crunchbase equivalents – yet). In theory, the recent trend of VC dollars going to fill a capital gap in CPG should result in a win-win. In effect, many of the tech VC investments into consumer are misguided, and sometimes even harmful. Investors may lose money, but entrepreneurs can lose companies they’ve spent lifetimes building.

There are a few things that VC investors should keep in mind to ensure they invest in a way that benefits both them and the entrepreneurs they work with.

One company won’t rule its market

The heart of the problem with tech investors in CPG is that they operate under the assumption that one CPG player can rule its market. They believe this because in tech, it’s largely true. When you look at Uber and Airbnb, it is likely that one or two players could own 70% of their respective markets. Holding this assumption in the CPG space, however, in fundamentally flawed.

There has been a secular shift over the past 5-10 years where people now favor unique, targeted products catering to personal preferences. Today, even the act of selecting a beer or hand lotion is a form of self-expression. The result is a fragmentation with many brands that are more targeted in their offering. Many of these products are inherently smaller in scale and never intend to be mass market—yet do frequently get gobbled up by public consumer conglomerates. The M&A in consumer and retail was over $300 billion in 2017 according to PWC, vs. $170b for tech.

While the market grows more and more fragmented with small to mid-sized brands offering diversified products, we’re moving far away from the notion that one condiments or baby products brand can own 70% of its category.

Too-high valuations and large raises are harmful, not encouraging

Relatedly, putting too high a valuation on a CPG company and theorizing it could rule its market is counterproductive and unrealistic. It pushes the entrepreneur to unnatural and harmful tactics to meet this valuation, or to eventually fundraise again at a lower valuation – or at a higher valuation from whatever out-of-tune investor they can find to do – then seriously struggle to exit. Some of the spiraling is obvious, including inflated marketing campaigns that force growth, often long before the product is ready, and some are less obvious, including inflated numbers in investor decks behind the scenes.  

Ask anyone knowledgeable in consumer about why Unilever bought Seventh Generation instead of the similar, but far more trendy Honest Company. It’s largely because of valuation. By every account, the VCs involved in Honest Company put a valuation in previous rounds that made no sense relative to core metrics. Consumer companies shouldn’t raise $30m in equity to grow, let alone $300m. The result: Honest Company couldn’t get the exit it wanted, had to cut costs, and reportedly faced tremendous unrest among employees who were upset about the direction the company was heading.

Ultimately, CPG brands don’t need that much money to grow. Capital efficiency is one of the beauties of CPG. Consumer companies can typically raise $4-8m to get to $10m in revenue, where they are often profitable. Tech companies typically raise $40-50m to get to the same revenue range, and often fail to make a profit even at that point. SkinnyPop, RXBar, Sir Kensington’s and Native Deodorant are great examples of the lean operations characteristic of CPG.

A great brand isn’t as simple as a D2C model and a sleek website

In the past year I’ve had 10-20 tech VCs call me and say some variation on this: “we want to get into consumer, but it has to be tech enabled, because we told our LPs we’d invest in tech companies.” This over focus on D2C leads VCs to put too much money into the company at too high a valuation.

D2C is a channel. Just like the convenience store channel (i.e. 7/11), club (Costco), mass (Walmart) and grocery (Safeway). Like these other channels, DTC has pros and cons. It is not a Holy Grail. Too often, we see inexperienced VCs talk about D2C as “lower cost” when in reality the average D2C brand raises 10-30x the amount of brands in the offline world with massive overvaluations. Tell a D2C entrepreneur that their channel is cheaper than offline, and she will quickly explain to you that the Customer Acquisition Costs in the past 3-5 years have made that no longer true. If D2C is better margins, why did Bonobos raise $127m, Dollar Shave Club raise $164m and Casper raise $240m?

D2C is a channel, but it does not change the underlying fundamentals of what makes a successful CPG company. Those fundamentals, aside from margins and team, are brand, distribution and product differentiation. Product differentiation in consumer is necessary, but not sufficient, for success. The product must be unique relative to other offerings, and in a way that matters to people. Kind Bar looked like real food relative to Clif Bar, 5 Hour Energy was the only energy drink fit for on-the-go, and Halo Top gave you permission to eat a whole pint in one sitting. If those sound silly, they are all billions-dollar companies that each raised far less than the typical tech company, thus with less dilution.

The way forward

Consumer is an amazing market with massive depth and presents a wonderful opportunity for investors to help build the dreams of entrepreneurs with them. If VCs truly want to succeed in this market, they need to take the time to understand the fundamentals of consumer investing. I hope that more investors catch on to this so that wonderful consumer entrepreneurs can continue to get the capital and resources they need to thrive.

Featured Image: RAL Development Services/Davis Brody Bond