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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Newmerix Says Hello To SAP Customers

Comments (10)

When Niel Robertson – the founder and CTO of Newmerix – started talking about his idea for a set of “next-generation software quality assurance” products aimed at packaged application vendors, he regularly listed several packaged application vendors, including PeopleSoft, Siebel, Oracle, and SAP as candidate packaged applications to target.

Newmerix focused their development initially on PeopleSoft products and has released three products – Automate!Test (automated software testing), Automate!Change (change management), and Automate!Program Manager (product management and regulatory compliance) – all for the PeopleSoft platform. 

When Oracle acquired PeopleSoft, a number of VCs that I know said something like “Brad – your screwed – there’s no reason for these products after Oracle owns the entire ERP footprint.”  “Au contraire” I responded (using one of the few French phrases that I’ve actually managed to learn), the trend and complete migration zoo that Oracle will generate insures the need for these types of products (if you want a hysterical and detailed overview about why this is happening, take a look at Niel’s brilliant post titled “I Pity The Fool” – I bet you never thought that Mr. T and the elusive Dirk Benedict could be woven into a serious discussion of Oracle’s migration path for the various products they’ve acquired.)

Of course, only time (and performance) will tell the end of the story, but so far it’s getting more and more exciting every quarter.  However, every time I talked to Niel, he’d look at me and say something like “SAP.”  Sometimes it was more, but often that was it.  Today, he backed up his word(s) by announcing that Newmerix now supports SAP’s products.  We are starting via the acquisition of the Object Manager product line from a company named Skywire – these products immediately become Newmerix Automate!Change for SAP and Automate!Program Manager for SAP.

These acquisitions use a long time “early acquisition” strategy that I’ve used successfully in many of my portfolio companies (Fred Wilson kindly referred to me as the “master of the venture rollup” – fortunately I can count some real masters like Jerry Poch and Len Fassler as mentors.)  If you’ve followed NewsGator’s trajectory, you know that they have acquired three companies to date – FeedDemon/BradSoft, NetNewswire/Ranchero Software, and Smartfeed.org/Windows Mobile Reader.  

As an early stage VC, I’ve found that when you’ve got a clear long term strategy developed, a super strong leadership team that is open to integrating new technologies, people and products into their company (vs. a classical “not invested here approach”), and a willingness to get close to great small companies that can help you quickly extend your product footprint, a buy (vs. build) approach is often really compelling.  There are lots of risks and not every acquisition or company is successful, but if you do it right, you can end up with some very nice companies like Return Path.

Congrats Niel and the Newmerix team on your nice strategic move – I look forward to the next one.

  • http://tachophobia.com Rick

    When a portfolio company makes these “early acquisitions”, is it typically for stock or cash?

  • http://www.feld.com Brad Feld

    Good question Rick – it’s usually a combination that depends on the long term desires and motivations of the shareholders of the company we are acquiring. I’ve learned over time that there is no simple, formulaic answer.

  • http://tachophobia.com Rick

    Thanks, Brad.

    I would assume, as a VC, you’d want your portfolio co to spend cash on the acquisition?

    I realize that you have the best intentions of the company at heart 100% of the time (right!?)… but as an investor, you’d probably not want to have your equity reduced with a stock acquisition?

  • http://www.feld.com Brad Feld

    I’m actually very comfortable with my portfolio companies using stock in an acquisition, or using cash, or some combination. I like to think that I’m economically rational and – as such – should be indifferent between stock and cash if the stock is valued correctly.

  • http://woodrow.typepad.com/the_ponderings_of_woodrow Jason Wood

    Brad,

    This is great news for Niel and his team. I met Niel at Sapphire (we were both part of Jeff Nolan’s Blogger’s Corner contingent) and hit if off with him immediately. I presume you read his account of meeting with Henning for a half hour and talking about bloggers?

    One question for you…as a VC, how do you view your role in a transaction like this? Do you have any say on the matter beforehand or is that dependent on the specific management team and situation? How does a relatively small company like Newmerix find a company like Skywire. It would seem it’s not just about finding a suitable acquisition target…but also finding one that’s for sale and fills in critical whitespace. No easy feat.

  • http://www.feld.com Brad Feld

    Jason,

    Re: My involvement – it varies dramatically from company to company. Sometimes I’m very involved in every step along the way including the negotiation; other times I’m less involved. I’m often a key part of the strategy discussion – in this case, I wasn’t on the board so Seth Levine who works with me (and was on the board) was deeply involved in the negotiation after we had both been engaged in the strategy discussion / decision (which took place over a period of time.)

    Re: how does a company like Newmerix find a company like Skywire? It’s a continual and active process of really understanding the competitive landscape, being willing to talk openly with companies that might be a competitor (or might be willing to join forces), and careful about not falling in love with everyone you talk to.

  • http://woodrow.typepad.com/the_ponderings_of_woodrow Jason Wood

    Brad, thanks for the followup.

    As a public equity investor, one of the real frustrations is the inability to impact your portfolio companies in a strategic manner.

    I think frankly some folks mistakenly paint the role of a VC as “create deal flow and sit on the board once a month” when, in fact, you guys are doing a heckuva lot more (or at least some of you are).

    Best,

    Jason

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