Who’s Your Vendor’s Daddy?

2 comments September 21st, 2006 David Bush - Iasta

Last month, AMR published an article entitled Who Really Owns Your Software Vendor? Should You Care? where they stated that private equity firms have been spending billions to buy up software companies and combine them into very large portfolios. It is true that acquisitions in software are a very regular occurrence, and that it often has no effect on you as the end customer, but the article, which states that software buyers need to understand who really owns their vendors notes the bad news associated with this recent trend:

• The real owners are financial investors with little interest (or knowledge of) the software products or underlying technology.
• Private equity firms typically do not want to hold an investment for more than five to seven years in totality.
• Employee, product, or customer loyalty is unlikely to influence business strategy.
• Debt reduction is a much higher priority than long-term product investments, such as functional rewrites or new architectures.

In other words, if your vendor is owned by a private equity firm, the chances of significant new releases are significantly diminished due to reduced chances of significant R&D investment, your input is less likely to be valued, and long term stability is up in the air, since the private equity firm is likely to dump the company once they’ve realized their expected returns.

By now you’re probably asking how does this affect me? Since most companies in our space are not currently owned by private equity firms. It affects you since most companies in the space were established with venture backing and are thus majority owned by venture capitalists who also want their money back within five to seven years. This means that if your vendor is majority owned by a VC and not picked up by a big company within the space looking to broaden its offering after a few years, it is most likely going to be sold to a private equity consolidator whose only interest is to ride it for all it is financially worth, even if it means driving the company into the ground.

This is one of the hidden values of our company when compared to others. We are 100% privately owned, profitable, and free of itchy trigger fingers eager to get return. We have had plenty of discussions with VC firms and have never been able to justify the changes that would inevitably impact our clients and our management style. If we ever do find a good way to accelerate growth beyond just having a good product, we will do so in a way that allows us to maintain our philosophy of running Iasta with a client driven focus. Our history since 2000 has proven that we can compete and excel against much larger and much deeper pocketbooks.

Entry Filed under: General, e-Sourcing Marketplace