Should Dell have pursued a more aggressive debt-reduction move with VMware?

When Dell announced it was spinning out VMware yesterday, the move itself wasn’t surprising: there had been public speculation for some time. But Dell could have gone a number of ways in this deal, despite its choice to spin VMware out as a separate company with a constituent dividend instead of an outright sale.

The dividend route, which involves a payment to shareholders between $11.5 and $12 billion, has the advantage of being tax-free (or at least that’s what Dell hopes as it petitions the IRS). For Dell, which owns 81% of VMware, the dividend translates to somewhere between $9.3 and $9.7 billion in cash, which the company plans to use to pay down a portion of the huge debt it still holds from its $58 billion EMC purchase in 2016.

VMware was the crown jewel in that transaction, giving Dell an inroad to the cloud it had lacked prior to the deal. For context, VMware popularized the notion of the virtual machine, a concept that led to the development of cloud computing as we know it today. It has since expanded much more broadly beyond that, giving Dell a solid foothold in cloud native computing.

Dell hopes to have its cake and eat it too with this deal: it generates a large slug of cash to use for personal debt relief while securing a five-year commercial deal that should keep the two companies closely aligned. Dell CEO Michael Dell will remain chairman of the VMware board, which should help smooth the post-spinout relationship.

But could Dell have extracted more cash out of the deal?

Doing what’s best for everyone

Patrick Moorhead, principal analyst at Moor Insights and Strategies, says that beyond the cash transaction, the deal provides a way for the companies to continue working closely together with the least amount of disruption.

“In the end, this move is more about maximizing the Dell and VMware stock price [in a way that] doesn’t impact customers, ISVs or the channel. Wall Street wasn’t valuing the two companies together nearly as [strongly] as I believe it will as separate entities,” Moorhead said.

Dell is spinning out VMware in a deal expected to generate over $9B for the company

Dell announced this afternoon that it’s spinning out VMware, a move that has been suspected for some time. Dell, which acquired VMware as part of the massive $58 billion EMC acquisition (announced as $67 billion) in 2015, owns approximately 81% of the stock and the company is expected to receive between $9.3 and $9.7 billion when the deal closes later this year.

Even when it was part of EMC, VMware had a special status in that it operates as a separate entity with its own executive team, board of directors and the stock has been sold separately as well.

“Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers. At the same time, Dell Technologies will continue to modernize its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom,” Dell CEO Michael Dell said in a statement.]

While there is a lot of CEO speak in that statement, it appears to mean that the move is mostly administrative as the companies will continue to work closely together, even after the spin off is official. Dell will remain as chairman of both companies. What’s more, the company plans to use the cash proceeds from the deal to help pay down the massive debt it still has left over from the EMC deal.

The deal is expected to close at the end of this year, but it has to clear a number of regulatory hurdles first. That includes garnering a favorable ruling from the IRS that the deal qualifies for a tax-free spin-off, which is seems to be a considerable hurdle for a deal like this.

This is a breaking story. We will have more soon.

5 product lessons to learn before you write a line of code

Before a startup can achieve product-market fit, founders must first listen to their customers, build what they require and fashion a business plan that makes the whole enterprise worthwhile. The numbers will tell the true story, but when it happens, you’ll feel it in your bones because sales will be good, customers will happy and revenue will growing.

Reaching that tipping point can be a slog, especially for first-time founders. To uncover some basic truths about building products, we spoke to three entrepreneurs who have each built more than one company:

Find out what your customers want — and build it

First-time founders often try to build the product they think the market wants. That’s what Scratchpad co-founder Salehi did when he founded his previous startup PersistIQ. Before launching his latest venture, he took a different approach: Instead of plowing ahead with a product and adjusting after he got in front of customers, he decided to step back and figure out what his customers needed first.

“Tactically what we did differently at Scratchpad is we tried to be much more deliberate up front. And what that looked like was [ … ] to not start with building, even though the product is such an important part, but really step back and understand what we are doing here in the first place,” he said.

Deeplite raises $6M seed to deploy ML on edge with fewer compute resources

One of the issues with deploying a machine learning application is that it tends to be expensive and highly compute intensive.  Deeplite, a startup based in Montreal, wants to change that by providing a way to reduce the overall size of the model, allowing it to run on hardware with far fewer resources.

Today, the company announced a $6 million seed investment. Boston-based venture capital firm PJC led the round with help from Innospark Ventures, Differential Ventures and Smart Global Holdings. Somel Investments, BDC Capital and Desjardins Capital also participated.

Nick Romano, CEO and co-founder at Deeplite, says that the company aims to take complex deep neural networks that require a lot of compute power to run, tend to use up a lot of memory, and can consume batteries at a rapid pace, and help them run more efficiently with fewer resources.

“Our platform can be used to transform those models into a new form factor to be able to deploy it into constrained hardware at the edge,” Romano explained. Those devices could be as small as a cell phone, a drone or even a Raspberry Pi, meaning that developers could deploy AI in ways that just wouldn’t be possible in most cases right now.

The company has created a product called Neutrino that lets you specify how you want to deploy your model and how much you can compress it to reduce the overall size and the resources required to run it in production. The idea is to run a machine learning application on an extremely small footprint.

Davis Sawyer, chief product officer and co-founder, says that the company’s solution comes into play after the model has been built, trained and is ready for production. Users supply the model and the data set and then they can decide how to build a smaller model. That could involve reducing the accuracy a bit if there is a tolerance for that, but chiefly it involves selecting a level of compression — how much smaller you can make the model.

“Compression reduces the size of the model so that you can deploy it on a much cheaper processor. We’re talking in some cases going from 200 megabytes down to on 11 megabytes or from 50 megabytes to 100 kilobytes,” Davis explained.

Rob May, who is leading the investment for PJC, says that he was impressed with the team and the technology the startup is trying to build.

“Deploying AI, particularly deep learning, on resource-constrained devices, is a broad challenge in the industry with scarce AI talent and know-how available. Deeplite’s automated software solution will create significant economic benefit as Edge AI continues to grow as a major computing paradigm,” May said in a statement.

The idea for the company has roots in the TandemLaunch incubator in Montreal. It launched officially as a company in mid-2019 and today has 15 employees with plans to double that by the end of this year. As it builds the company, Romano says the founders are focused on building a diverse and inclusive organization.

“We’ve got a strategy that’s going to find us the right people, but do it in a way that is absolutely diverse and inclusive. That’s all part of the DNA of the organization,” he said.

When it’s possible to return to work, the plan is to have offices in Montreal and Toronto that act as hubs for employees, but there won’t be any requirement to come into the office.

“We’ve already discussed that the general approach is going to be that people can come and go as they please, and we don’t think we will need as large an office footprint as we may have had in the past. People will have the option to work remotely and virtually as they see fit,” Romano said.

Zoho launches new low code workflow automation product

Workflow automation has been one of the key trends this year so far, and Zoho, a company known for its suite of affordable business tools has joined the parade with a new low code workflow product called Qntrl (pronounced control).

Zoho’s Rodrigo Vaca, who is in charge of Qntrl’s marketing says that most of the solutions we’ve been seeing are built for larger enterprise customers. Zoho is aiming for the mid-market with a product that requires less technical expertise than traditional business process management tools.

“We enable customers to design their workflows visually without the need for any particular kind of prior knowledge of business process management notation or any kind of that esoteric modeling or discipline,” Vaca told me.

While Vaca says, Qntrl could require some technical help to connect a workflow to more complex backend systems like CRM or ERP, it allows a less technical end user to drag and drop the components and then get help to finish the rest.

“We certainly expect that when you need to connect to NetSuite or SAP you’re going to need a developer. If nothing else, the IT guys are going to ask questions, and they will need to provide access,” Vaca said.

He believes this product is putting this kind of tooling in reach of companies that may have been left out of workflow automation for the most part, or which have been using spreadsheets or other tools to create crude workflows. With Qntrl, you drag and drop components, and then select each component and configure what happens before, during and after each step.

What’s more, Qntrl provides a central place for processing and understanding what’s happening within each workflow at any given time, and who is responsible for completing it.

We’ve seen bigger companies like Microsoft, SAP, ServiceNow and others offering this type of functionality over the last year as low code workflow automation has taken center stage in business.

This has become a more pronounced need during the pandemic when so many workers could not be in the office. It made moving work in a more automated workflow more imperative, and we have seen companies moving to add more of this kind of functionality as a result.

Brent Leary, principal analyst at CRM Essentials, says that Zoho is attempting to remove some the complexity from this kind of tool.

“It handles the security pieces to make sure the right people have access to the data and processes used in the workflows in the background, so regular users can drag and drop to build their flows and processes without having to worry about that stuff,” Leary told me.

Zoho Qntrl is available starting today starting at just $7 per user month.

Zoho launches new low code workflow automation product

Workflow automation has been one of the key trends this year so far, and Zoho, a company known for its suite of affordable business tools has joined the parade with a new low code workflow product called Qntrl (pronounced control).

Zoho’s Rodrigo Vaca, who is in charge of Qntrl’s marketing says that most of the solutions we’ve been seeing are built for larger enterprise customers. Zoho is aiming for the mid-market with a product that requires less technical expertise than traditional business process management tools.

“We enable customers to design their workflows visually without the need for any particular kind of prior knowledge of business process management notation or any kind of that esoteric modeling or discipline,” Vaca told me.

While Vaca says, Qntrl could require some technical help to connect a workflow to more complex backend systems like CRM or ERP, it allows a less technical end user to drag and drop the components and then get help to finish the rest.

“We certainly expect that when you need to connect to NetSuite or SAP you’re going to need a developer. If nothing else, the IT guys are going to ask questions, and they will need to provide access,” Vaca said.

He believes this product is putting this kind of tooling in reach of companies that may have been left out of workflow automation for the most part, or which have been using spreadsheets or other tools to create crude workflows. With Qntrl, you drag and drop components, and then select each component and configure what happens before, during and after each step.

What’s more, Qntrl provides a central place for processing and understanding what’s happening within each workflow at any given time, and who is responsible for completing it.

We’ve seen bigger companies like Microsoft, SAP, ServiceNow and others offering this type of functionality over the last year as low code workflow automation has taken center stage in business.

This has become a more pronounced need during the pandemic when so many workers could not be in the office. It made moving work in a more automated workflow more imperative, and we have seen companies moving to add more of this kind of functionality as a result.

Brent Leary, principal analyst at CRM Essentials, says that Zoho is attempting to remove some the complexity from this kind of tool.

“It handles the security pieces to make sure the right people have access to the data and processes used in the workflows in the background, so regular users can drag and drop to build their flows and processes without having to worry about that stuff,” Leary told me.

Zoho Qntrl is available starting today starting at just $7 per user month.

Microsoft goes all in on healthcare with $19.7B Nuance acquisition

When Microsoft announced it was acquiring Nuance Communications this morning for $19.7 billion, you could be excused for doing a Monday morning double take at the hefty price tag.

That’s surely a lot of money for a company on a $1.4 billion run rate, but Microsoft, which has already partnered with the speech-to-text market leader on several products over the last couple of years, saw a company firmly embedded in healthcare and it decided to go all in.

And $20 billion is certainly all in, even for a company the size of Microsoft. But 2020 forced us to change the way we do business from restaurants to retailers to doctors. In fact, the pandemic in particular changed the way we interact with our medical providers. We learned very quickly that you don’t have to drive to an office, wait in waiting room, then in an exam room, all to see the doctor for a few minutes.

Instead, we can get on the line, have a quick chat and be on our way. It won’t work for every condition of course — there will always be times the physician needs to see you — but for many meetings such as reviewing test results or for talk therapy, telehealth could suffice.

Microsoft CEO Satya Nadella says that Nuance is at the center of this shift, especially with its use of cloud and artificial intelligence, and that’s why the company was willing to pay the amount it did to get it.

“AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud in Healthcare and Nuance,” Nadella said in a post announcing the deal.

Holger Mueller, an analyst at Constellation Research, says says that may be so, but he believes that Microsoft missed the boat with Cortana and this is about helping the company catch up on a crucial technology. “Nuance will be not only give Microsoft technology help in regards to neural network based speech recognition, but also a massive improvement from vertical capabilities, call center functionality and the MSFT IP position in speech,” he said.

Microsoft sees this deal doubling what was already a considerable total addressable market to nearly $500 billion. While TAMs always tend to run high, that is still a substantial number.

It also fits with Gartner data, which found that by 2022, 75% of healthcare organizations will have a formal cloud strategy in place. The AI component only adds to that number and Nuance brings 10,000 existing customers to Microsoft including some of the biggest healthcare organizations in the world.

Brent Leary, founder and principal analyst at CRM Essentials, says the deal could provide Microsoft with a ton of health data to help feed the underlying machine learning models and make them more accurate over time.

“There is going be a ton of health data being captured by the interactions coming through telemedicine interactions, and this could create a whole new level of health intelligence,” Leary told me.

That of course could drive a lot of privacy concerns where health data is involved, and it will be up to Microsoft, which just experienced a major breach on its Exchange email server products last month, to assure the public that their sensitive health data is being protected.

Leary says that ensuring data privacy is going to be absolutely key to the success of the deal. “The potential this move has is pretty powerful, but it will only be realized if the data and insights that could come from it are protected and secure — not only protected from hackers but also from unethical use. Either could derail what could be a game changing move,” he said.

Microsoft also seemed to recognize that when it wrote, “Nuance and Microsoft will deepen their existing commitments to the extended partner ecosystem, as well as the highest standards of data privacy, security and compliance.”

We are clearly on the edge of a sea change when it comes to how we interact with our medical providers in the future. COVID pushed medicine deeper into the digital realm in 2020 out of simple necessity. It wasn’t safe to go into the office unless absolutely necessary.

The Nuance acquisition, which is expected to close some time later this year, could help Microsoft shift deeper into the market. It could even bring Teams into it as a meeting tool, but it’s all going to depend on the trust level people have with this approach, and it will be up to the company to make sure that both healthcare providers and the people they serve have that.

Microsoft is acquiring Nuance Communications for $19.7B

Microsoft agreed today to acquire Nuance Communications, a leader in speech to text software, for $19.7 billion. Bloomberg broke the story over the weekend that the two companies were in talks.

In a post announcing the deal, the company said this was about increasing its presence in the healthcare vertical, a place where Nuance has done well in recent years. In fact, the company announced the Microsoft Cloud for Healthcare last year, and this deal is about accelerating its presence there. Nuance’s products in this area include Dragon Ambient eXperience, Dragon Medical One and PowerScribe One for radiology reporting.

“Today’s acquisition announcement represents the latest step in Microsoft’s industry-specific cloud strategy,” the company wrote. The acquisition also builds on several integrations and partnerships the two companies have made in the last couple of years.

The company boasts 10,000 healthcare customers, according to information on the website. Those include AthenaHealth, Johns Hopkins, Mass General Brigham and Cleveland Clinic to name but a few, and it was that customer base that attracted Microsoft to pay the price it did to bring Nuance into the fold.

Nuance CEO Mark Benjamin will remain with the company and report to Scott Guthrie, Microsoft’s EVP in charge of the cloud and AI group.

Nuance has a complex history. It went public in 2000 and began buying speech recognition products including Dragon Dictate from Lernout Hauspie in 2001. It merged with a company called ScanSoft in 2005. That company began life as Visioneer, a scanning company in 1992.

Today, the company has a number of products including Dragon Dictate, a consumer and business text to speech product that dates back to the early 1990s. It’s also involved in speech recognition, chat bots and natural language processing particularly in healthcare and other verticals.

The company has 6,000 employees spread across 27 countries. In its most recent earnings report from November 2020, which was for Q42020, the company reported $352.9 million in revenue compared to $387.6 million in the same period a year prior. That’s not the direction a company wants to go in, but it is still a run rate of over $1.4 billion.

At the time of that earnings call, the company also announced it was selling its medical transcription and electronic health record (EHR) Go-Live services to Assured Healthcare Partners and Aeries Technology Group. Company CEO Benjamin said this was about helping the company concentrate on its core speech services.

“With this sale, we will reach an important milestone in our journey towards a more focused strategy of advancing our Conversational AI, natural language understanding and ambient clinical intelligence solutions,” Benjamin said in a statement at the time.

It’s worth noting that Microsoft already has a number speech recognition and chat bot products of its own including desktop speech to text services in Windows and on Azure, but it took a chance to buy a market leader and go deeper into the healthcare vertical.

The transaction has already been approved by both company boards and Microsoft reports it expects the deal to close by the end of this year, subject to standard regulatory oversight and approval by Nuance shareholders.

This would mark the second largest purchase by Microsoft ever, only surpassed by the $26.2 billion the company paid for LinkedIn in 2016.

Industry experts bullish on $500M KKR investment in Box, but stock market remains skeptical

When Box announced it was getting a $500 million investment from private equity firm KKR this morning, it was hard not to see it as a positive move for the company. It has been operating under the shadow of Starboard Value, and this influx of cash could give it a way forward independent of the activist investors.

Industry experts we spoke to were all optimistic about the deal, seeing it as a way for the company to regain control, while giving it a bushel of cash to make some moves. However, early returns from the stock market were not as upbeat as the stock price was plunging this morning.

Alan Pelz-Sharpe, principal analyst at Deep Analysis, a firm that follows the content management market closely, says that it’s a significant move for Box and opens up a path to expanding through acquisition.

“The KKR move is probably the most important strategic move Box has made since it IPO’d. KKR doesn’t just bring a lot of money to the deal, it gives Box the ability to shake off some naysayers and invest in further acquisitions,” Pelz-Sharpe told me, adding “Box is no longer a startup its a rapidly maturing company and organic growth will only take you so far. Inorganic growth is what will take Box to the next level.”

Dion Hinchcliffe, an analyst at Constellation Research, who covers the work from home trend and the digital workplace, sees it similarly, saying the investment allows the company to focus longer term again.

“Box very much needs to expand in new markets beyond its increasingly commoditized core business. The KKR investment will give them the opportunity to realize loftier ambitions long term so they can turn their established market presence into a growth story,” he said.

Pelz-Sharpe says that it also changes the power dynamic after a couple of years of having Starboard pushing the direction of the company.

“In short, as a public company there are investors who want a quick flip and others that want to grow this company substantially before an exit. This move with KKR potentially changes the dynamic at Box and may well put Aaron Levie back in the driver’s seat.”

Josh Stein, a partner at DFJ and early investor in Box, who was a long time board member, says that it shows that Box is moving in the right direction.

“I think it makes a ton of sense. Management has done a great job growing the business and taking it to profitability. With KKR’s new investment, you have two of the top technology investors in the world putting significant capital into going long on Box,” Stein said.

Perhaps Stein’s optimism is warranted. In its most recent earnings report from last month, the company announced revenue of $198.9 million, up 8% year-over-year with FY2021 revenue closing at $771 million up 11%. What’s more, the company is cash-flow positive, and has predicted an optimistic future outlook.

“As previously announced, Box is committed to achieving a revenue growth rate between 12-16%, with operating margins of between 23-27%, by fiscal 2024,” the company reiterated in a statement this morning.

Investors remains skeptical, however, with the company stock price getting hammered this morning. As of publication the share price was down over 9%. At this point, market investors may be waiting for the next earnings report to see if the company is headed in the right direction. For now, the $500 million certainly gives the company options, regardless of what Wall Street thinks in the short term.

Comet announces $13M Series A for ML model building tool

There’s been a lot of investment in machine learning startups recently as companies try to push the notion into a wider variety of endeavors. Comet, a company that helps customers iterate on models in an experimentation process designed to eventually reach production, announced a $13 million Series A today.

Scale Venture Partners led the round with help from existing investors Trilogy Equity Partners and Two Sigma Ventures. The startup has raised almost $20 million, according to Crunchbase data.

Investors saw a company that has grown revenue over 500% over the last year, says Gideon Mendels, co-founder and CEO. “Things have been working very well for us. On the product side, we’ve continued to double down on what we call experimentation management where we are really tracking these models — data that came into them, the hyper parameters and helping teams to debug and understand what’s going on with their models,” he said.

In addition to the funding, the company is also announcing an expansion of the platform to follow the models into post production with a product they are calling Comet Model Production Monitoring (MPM).

“The model production monitoring product essentially focuses on models post production. The original product was more around how multiple offline experiments are modeled during training, while MPM is focused on these models once they hit production for the first time,” Mendels explained.

Andy Vitus, partner at investor Scale Venture Partners, sees model lifecycle management tooling like Comet’s as a developing market. “Machine learning and AI will drive the future of enterprise software, and ensuring that organizations have full visibility and control of a model’s life cycle will be imperative to it,” Vitus said in a statement

As the company grows, it’s opening a new engineering hub in Israel in addition to its office in NYC. While these offices are closed for now, Mendels says that they will have a hybrid office when the pandemic ebbs.

“Moving forward we are planning to have an office in New York City and another office in Tel Aviv. But we’re not going to require anyone to work from the office if they choose not to, or, they can come in a couple days a week. And we’re still going to support hires from around the world.”