Examining the Recent History of Qualifying Investment Worthy Target Ventures in the B2B IT subsectors.
Alan D. Wilensky, Analyst
…”Don’t you know, don’t you know, the truth so long suppressed, must now be told….” From, The Book of Formation, the Underpinnings of the Kabbalah.
Is the The B2B IT sector a difficult arena to source and place capital or, conversely, to harvest capital out of such deals? According to a diverse pool of analysts, including several specializing in the enterprise software and services sector, the past 15 years of high-profile B2B tech company consolidations driven by certain PE funds, has resulted in a reduction in overall availability of mid stage direct placement capital deals for well-established, maturing ventures poised for growth. This reduction in capital resources, and how it came about, is a troubling tale. The epilogue is even sadder as if that were even possible, describing the pollution that occurred in the aftermath of the B2B consolidations. The selection criteria and commonsense values became out of phase, upside down, leading to long-term damages. These are the wages of fear and doubt that reliably occur when sound targeting attributes are ignored. Applying the corrective selection targeting criteria – no MBA required – when the next phase of capitalization restarts – and we shall see that these mature, well led, clearly innovative B2B ventures come to the surface, with long-established continuities of private ownership; these ventures have been overlooked en mass for the past 15 years in the B2B IT subsectors.
While it seems a bit farfetched to state that, “better companies were deliberately ignored in favor of the now well-known, (even infamous) weeble-companies tagged by PE’s for toxic consolidation). They were all past their prime, overstaffed, overstuffed, having long abandoned their founders drive and vision, and eschewing the technical staff’s architectural and system acumen. The sordid mess. in a nutshell, stank of corruption, but there is still hope….
We all know that no one can stop a true inventor – the Edison’s, the Teslas, the Jobsian leaders….these brilliant, hard-headed, are true to themselves (and to the very word) Innovators – they never go away, they continue to innovate and improve, and gain more ground.
A simple rendering:
A shallow reservoir of early and mid-maturing stage capital vanished after a 15 year period of horrendously structured mega-deal rollups in the B2B sector. These roll ups created ‘zombie-like’ composite corporations that served no one at all well – not the investors, the B2B Tech and Tools and Services industry, and certainly not the customers. These highly inefficient and byzantine experiments in direct capital placement showed with a grim finality that these particular PE‘s at the center of the B2B debacle, were ill-equipped to operate in the sector (a gross understatement) – but mostly it was a massive stumbling by the PE’s in applying well-informed selection targeting criteria, with the result that some of the best researched, ready to scale opportunities in the sector were ignored. More will be said of such mature ventures, all having superior intellectual capital portfolios, and almost all harboring the even more important attributes of: ‘continuity of ownership, a well mastered design process, and fully and truly transmitted, ‘ethos of operations’.
As a result, discretionary R&D was reduced, delayed, and otherwise weighed down as a sense of palpable uncertainty settled over the market. Failed selection modeling caused rippling waves of sector-wide damage, and multi-year acquisition delays of systems and services. The damage has only been partially repaired, and for some it is a process that has not reached its conclusion – but the thaw has commenced one full year past the peak of ‘the great B2B wars of the mid aughts’. Interviews with companies that were directly in the line of fire at the peak of the debacle are coming back to level revenue, which nets out to a loss due to missed growth.
A properly illustrated diorama or tableau would explain – at a glance – the complex investment vs. risk strategy that was applied to gain such a poor result. This realization is just now landing on the shoulders of the culpable Fund’s, as an industry-wide realization that their progeny, the “weeble corps” they have left us all, and their customers are wobbling, yet resisting gravity in not quite falling down. These are some of the best-known enterprise integration resellers and EDI networks – but the best known of all are now serial-tragicomic dramas reading like King Lear, but are neither compelling nor as interesting when stripped of the ‘I told you so’ business lessons that will be covered in the following monograph. Such is the house that a certain type of PE built for the now somewhat stunted B2B Technology sector.
Now, post acquisition, the acquired knowledge of the founding engineering or operations teams, the IP champions, are long gone. The acquired company’s culture of collective knowledge and the skills of experienced engineers and operators, all were obscenely disparaged – – they were often the first slated for post-acquisition termination..
The B2B IT sector is in sore need of exactly the opposite selection model – a new model that is not the least bit mysterious, where a Founder’s clear vision and unquestioned expertise are just two of a multitude of attributes that grow out of the soil of ‘continuity of ownership’.
Have such reliable verities been altogether forgotten? Continue reading