Public Telco Software Provider Makes a Run

Admittedly, I was skeptical when telecommunications software firm BroadSoft filed an initial public offering just over a year ago.

I’ve done business with the company, and Strategic Communications Group (Strategic) developed the initial concept and editorial strategy for BroadSoft’s corporate blog, themed “Broadband Ignite.”  It’s a good company populated with talented professionals.

My skepticism was based on two fundamental (and related) concerns about their business: 1) although they are a dominant provider, BroadSoft’s market (telecommunications carriers) is relatively defined and niche, and 2) as a result, they would have difficulty dramatically scaling their revenue to meet investor expectations.

I sure was wrong about BroadSoft’s prospects in the public markets.  After languishing a bit after its IPO, the stock went on a run jumping from $7 to more than $50 a share.  It currently rests in the mid-30s.

Jim Tholen, BroadSoft

Last week, I attended a presentation from BroadSoft’s CFO Jim Tholen to the Association for Corporate Growth’s (ACG)National Capital Chapter.  Here are a couple of quotes from Jim that resonated with the audience:

--It’s important to play offense even in tough times.

--There is still magic in being a US, venture-backed technology company.

--VoIP is no longer a science experiment by Vonage.  It’s the technical path of choice by most telecommunications providers.

--Entrepreneurial organizations are defined by never being satisfied.  We break the safety of success.

--We have an acquisition strategy, rather than a strategy around acquisitions.

Cries of Collusion

There are certain words in business with negative connotations.

For instance, it's seldom a compliment when an executive is tagged as a micromanager.  Yet, in some environments an all consuming, hands on approach is an absolute must for success.   Consider the expectations of BP's leadership related to the clean-up of the Deepwater Horizon disaster.

Now let's consider collusion.  We know it's bad, right?  It limits competition and potentially creates an unfair advantage for certain parties. 

Recently, uber-blogger and soon-to-be AOL employee Michael Arrington busted in uninvited on a group of angel investors dining in Silicon Valley and accused them of conspiring to cheat entrepreneurs through unfair valuation and negotiation practices.  Other investors who were not in attendance at the dinner were quick to weigh in with their outrage.

While I recognize the illegality of collusion is certain situations, in this particular case I have no problem with investors coming together to share best practices, compare notes and set parameters.  Why?

For starters, there is a friendly coopetition that exists in the investor community.  Yes...they co-invest on deals and all maintain a shared interest in limiting valuations.  However, an investor is ultimately motivated by their own personal gain and will act accordingly.

Second, the angel community (as well as other sources of capital investment) is not geographically limited to the Valley.  While this dinner apparently included a set of the most profile angels in the region, it excluded well qualified investors in other technology hubs such as Los Angeles, Chicago, Boston, Austin and Washington, DC.

And finally, the decision to accept the terms of an investment ultimately resides with the entrepreneur.  They have choice with a myriad of funding options -- both private sector and government backed.

So, let's knock off the cries of collusion.  Investment terms and valuations are determined by the market, rather than a group of wealthy investors sharing a meal.

VC Crisis Could Slow Innovation

The Dow Jones’ Scott Austin provides an interesting perspective on the recent press release from the National Venture Capital Association (NVCA) that calls the inaccessibility of the public markets a crisis for the VC industry.

Venture Capital Industry Under the Gun
http://tinyurl.com/6n3de7


Austin also cites a study from VentureSource that reports more than 1,400 companies funded during the dot com boom of the late 1990s still exist in venture firm's portfolios.

“A majority of these companies -- which received a total of about $50 billion in venture capital and employ more than 150,000 thousand people -- will have to shut down or sell on the cheap. Venture capitalists can't hold onto them forever.”

While I have seen too many instances in which venture capitalists have made decisions to the detriment of a company’s management, employees and customers, I recognize a healthy and thriving technology community is dependent upon their contributions.

And it’s more than the money they manage. VCs are prudent risk-takers and provide the funding, counsel and insight that makes innovation possible.

The VC industry needs to get well….quickly.