VMWare in the Merc
Posted by Jeff as Companies
There’s always a sailing angle in the fluff pieces on successful companies…
Growing up on the banks of Chesapeake Bay, Diane Greene loved to sail her dinghy. She mastered windsurfing when the sport was new. She studied naval architecture and as a young woman lived in Hawaii, designing windsurfing gear.
Like a lot of people I am really happy for VMWare, they are a great company with a truly in-a-class-by-itself product. To see the employees come out ahead in the IPO is nothing but goodness.
There is an interesting backstory on VMWare about their early days. This deal was shopped heavily and a lot of investors looked at the deal and passed because they just couldn’t understand why virtualization would be important when everything we know tells us that hardware prices would continue to fall. The value turned out to be a lot of things other than cost, we now know.
The other factors in their early fundraising story were that venture investors don’t like husband and wife teams, especially when the wife is as understated as Diane Greene is. SAP passed on an early opportunity to invest primarily because of the husband and wife factor. In our case it is clear that no one questioned her competence directly, but the fact is that Greene doesn’t fit the template of the classic Silicon Valley CEO and it is without question that investors had to consider their ability to replace her given the voting power their combined stock guaranteed.
I think it’s also fair to say that a lot of investors overestimated the ability of competitors and open source projects to replicate what VMWare is doing. At it’s core, there is a very small population of engineers and architects who can deliver a virtualization product and, as it turns out, that just isn’t getting any easier as time goes by. It’s a super complex product to deliver and VMWare had demonstrated that they do it better than anyone else, a barrier not likely to be breached any time soon.
In the final analysis I think a couple of things are clear, first and foremost is that boostrapping the company to the degree that they did ended up having a highly beneficial effect for the employees. Another lesson is that venture investors often experience inability to unstick their paradigm when they come across a deal like VMWare that isn’t about sex appeal, consumer flash, and in-the-tornado founder charisma. Invariably, venture investors look at something like VMWare and try to fit it into a predefined bucket based on other investments they have made or things they have looked at. It takes a company like VMWare to remind everyone that meat-and-potatoes technology may be boring but it is really lucrative.