Quickly Unpacking Two Recent Acquisitions (of Cylance; of PlanGrid)
It’s a holiday week, we’ve been cooped up inside with toddlers avoiding second-hand smoke from horrific #CampFire up north (and bracing ourselves for all the news that’s still to come out from what is left of Paradise, CA), and hosting family from out of town — so, this post is almost a week late and not as urgent as other matters, but better late than never.
Every time there is a big technology exit (usually via M&A), I attempt to quickly unpack key takeaways from the transaction. However, 2018 has other ideas, with the most money ever invested in U.S. venture capital to date (more on this in a separate post), unfortunately relegating billion-dollar exits as “ho-hum” events to the technology crowd. Here’s my quick analysis with respect to two major recent technology exits:
BlackBerry Acquires Cylance For $1.4B
1/ Cash Is King: The $1.4B price tag squeezed out by BlackBerry represented *over half* of the actual cash reserves it had sitting on its balance sheet. Typically in M&A, all-cash offers are more common when the acquirer dwarfs the target in terms of market cap; otherwise, M&A usually involves stock in the mix, which leads us to believe Cylance wouldn’t have accepted anything but cash — which makes sense given the company was reportedly booking $130M/year with 3,500 customers.
2/ Cyber-security Is Red-Hot: Earlier this year, Cisco acquired Duo for $2.2B and Thoma Bravo took over Veracode for $950M. Internet security has always been a favorite of technology VCs, but I personally suspect the idea of security will broaden as the Internet itself grows beyond phones, tablets, and other connected devices — as we see now in the news with our social graphs, artificial intelligence, crypto, and other emergent technologies. The overall surface-area for what security companies can target seems to be growing 100-fold alongside the size of the threats.
3/ BlackBerry Ripens: As BlackBerry begins a pivot from the once-leading smartphone manufacturer into an enterprise software and services company, Cylance helps bolster BlackBerry’s offering with a legitimate enterprise security player. It’s been a few years now since BlackBerry made phones, and this represents its largest purchase to date (by a factor of 3) since its 2015 acquisition of Good Technology.
4/ The Big Winners: Cylance raised around ~$280M in financing, with large equity stakeholders being Khosla Ventures, Fairhaven, and Blackstone. Khosla Ventures has quietly been on a roll over the past few years, most recently with Square (a monster, monster return, assuming they held post-IPO) and Guardant, among others; and they old early shares in Instacart, DoorDash, OpenDoor, and many winners in the most recent unicorn crop.
5/ Forgotten Fruits And Future Harvests: Ultimately, this is a notable transaction because it gives us a chance to reflect on the icon BlackBerry of yesteryear and imagine its future as an enterprise services company, now able to leverage artificial intelligence at scale via Cylance, and offer more goodies with respect to its shift toward chip-level security for all internet-connected devices, from devices that are not always connected all the way to autonomous vehicles.
AutoDesk Acquires PlanGrid For $875M
1/ A Pre-Seed Reminder: According to Crunchbase, PlanGrid was founded and went through Y Combinator in 2012. The company only raised a bit over $1M as seed capital. Compare that with $3-4M seed rounds today, you could say PlanGrid raised a pre-seed round, but then quickly found their market to target, and were able to finance operations with revenue until Sequoia knocked on their door.
2/ Transforming Old Industries: It’s almost cliche to hear founders and investors talking about their love of “unsexy markets” and using technology to transform old industries, and now in PlanGrid, we have a very large and notable example which should give other players hope in thinking this type of event can happen in their industry, too.
3/ AutoDesk Eyes New Markets: Despite going through leadership transitions and quarterly losses, AutoDesk remains an iconic software company that’s been nearly tripled its market value over the past three years. Originally built as the leading CAD software company, AutoDesk has smartly leveraged its brand and stock appreciation to place chess pieces like PlanGrid on the board in new and extremely large markets, such as construction. Autodesk will integrate PlanGrid’s software and its Autodesk Revit and Autodesk BIM 360 construction-management platform. With this purchase, AutoDesk brings with it 400 employees, 12,000 customers, and software that touches over 120,000 paid users. Those touchpoints, in turn, become an extension for AutoDesk to deepen its tentacles into fertile territory.
4/ The Big Winners: As we do with any big exits, we need to know who backed the company early. This represents one the largest outcomes for a Y Combinator company, after Dropbox, Cruise, and Twitch. Notable seed funds like SV Angel and Initialized backed the company early, and of course Sequoia led a large Series A in PlanGrid a few years after YC.
5/ The Crowd Saw X, We Saw Y: One of my favorite quotes about startups and technology comes from Instagram’s co-founder Systrom. In anticipation of the iPhone 4, he said (paraphrased): “Everyone saw a new phone with a great camera; we saw a great camera with a network.” If we rewind the clock back to 2011/2012, the announcement of the iPad was largely viewed through the lens of consumer apps — a notable example being Flipboard. PlanGrid, on the other hand, realized the complexity of construction workflows — captured nicely in this Tweetstorm by ex-PlanGrid engineer and current Gatsby.js co-founder Sam Bhagwat — was perfectly suited for the iPad in a rugged work environment. Perhaps while everyone saw a consumer device, the PlanGrid team saw a new canvas for building plans to drawn, edited, and built — a vision which leads to this month’s incredible outcome.