By Rodney Rogers
So I’m going to try to sum up the past 6 years in about 1,000 words. This may be a bigger challenge for me than this deal we just signed.
Before getting into it, I want to thank Joe Tucci, Pat Gelsinger, Howard Elias and everyone else that made this bet on us. We could not be more excited to embrace the awesome responsibility of Virtustream becoming the newest company in the EMC Federation.
We will not let you down.
A Bit of Background:
When my co-founder Kevin Reid and I started Virtustream in January of 2009, we were the antithesis of Silicon Valley hipsters. We were a couple of 40-something East coast guys whose technical experience came largely from the application services space (our Bios). We were, quite possibly, the least cool guys in the cloud. Further, we were intent on building a start-from-scratch cloud software and services business that would ultimately compete with the industry’s titans. Thankfully, we were foolish.
At that time we admired the core cloud architecture that AWS had built which ultimately ‘made’ the public cloud market that they continue to dominate today. We felt attempting to build a sub-scale AWS model, however, would be venture capital suicide and instead focused on incorporating many of the principles they pioneered in the way of multi-tenancy, elasticity, orchestration, and automation toward solving the engineering problem associated specifically with running I/O-intensive, mission critical enterprise applications (such as SAP and others) in the cloud. Further, we focused on automating many of the system functions required to manage these particular types of enterprise application environments so as to be able to offer a uniquely efficient managed service for the technology landscapes that ran on our cloud. Virtustream was born.
So in the midst of the 2009/2010 U.S. credit crisis we raised venture capital, built a team, and started to design and write xStream, our cloud management platform software. If you are not familiar with our technology you can find short high-level overview here.
We use xStream today to run our own cloud IaaS in North America and Western Europe, make it available as a commercial software product to Service Providers around the world to power their own cloud IaaS offerings, and also make it directly available as a commercial software product to enterprises and government agencies for private cloud builds.
While there has been some promising IP developed in the venture capital backed cloud software and services space over the past 5 -10 years, it is more rare to find viable/sustainable commercial results. This is what we are most proud of. We were able to separate ourselves from the pack in this regard and as a young company achieve viable commercial results in a relatively short time in a space that is furiously IP-intensive and competitive.
Our business today is on an approximately $100 million annualized revenue run-rate of which approximately 60% is cloud IaaS and 40% is cloud software – the latter of which we primarily license to other Service Providers around the world. I believe we now have just achieved the first inflection point towards scaling this business. Not so much yet in our current revenue run-rate, but rather in the profile of that revenue now being very conducive to high forward recurring revenue growth rates based on major wins within Fortune 500 customers on both the IaaS and software fronts. We have proven to-date that we can win against anyone in our areas of focus without much geographical reach, or much of a balance sheet relative to our competitors. Virtustream did not exist just over 6 years ago, and I believe strongly we are well-positioned to grow within a reasonable timeframe to a billion dollar revenue business by way of our own growth trajectory and by fully leveraging the Federation’s assets and reach. Yes, you can all now judge me accordingly on that.
We had been preparing to take Virtustream public for about a year now. Earlier this year we had evaluated bankers and had received numerous data points on how we may price a public offering. We started down the path of a standard 3-Quarter process of selecting a banker, writing an S-1, and then ultimately filing it with the SEC. Our target IPO date range was Q4-15 to Q1-16.
As is often the case when you take yourself through a process like this, acquisition suitors emerge. We had dialogue with parties we knew well and knew had an interest in us. We received Term Sheets from a number of parties and evaluated our choices. The ultimate valuation ranges of these Term Sheets and the present value of the public offering pricing estimates were all in the same range of in/around $1.2 billion USD. We were in the wonderful position of having options, but also had a great burden of responsibility in making the right choice for our customers, employees and shareholders.
We chose EMC. It was, quite honestly, an easy decision. In addition to the terms EMC proposed, the enterprise-focused technology and service assets within the EMC Federation are, in our opinion, unparalleled. We believe that we help fulfill the EMC vision of being able to run any type of enterprise application in the cloud, anywhere in the world, through ultimately whatever method of consumption makes sense for the customer. EMC’s reach, sales force, commercial model and asset base will literally give us the opportunity to take this precious kernel of IP that we have developed and reach the world with it. Being structured as a new Federation Company affords us the opportunity to fulfill our own dream of changing the world of enterprise IT computing. We’re very excited about what this means in terms of expanding our technology offerings and reach for our customers and partners around the world – who play such an important role not just in shaping our journey, but also in shaping our very products and services.
In closing I will also say that we found every single person we dealt with at EMC to not only be outstanding in their area of professional discipline, but also just great people. That was also of ultimate importance to us.
We are humbled, energized and thrilled to now be EMC strong.