Meritech: Patient, Value Add Capital
The BlueArc transformation
When Paul Madera of Meritech first invested in BlueArc in 2003, their initial product was a very high speed and expensive network attached storage (NAS) system with very few management features.
In the late 1990s, BlueArc was lauded by George Gilder’s Telecosm report as revolutionary technology that “breaks through the storage bottleneck on the web.“ BlueArc’s unique architecture could retrieve data an order of magnitude faster than competing products available from the brand names – Network Appliance, EMC and others. The Company received an exceptional amount of press and attention, but in reality significant software needed to be developed before the product was ready for the traditional market. In addition, the product cost needed to be reduced to be affordable for any but the very highest-demand users.
By 2005 the company required more capital; sales growth had slowed precipitously and the company desperately needed to continue to invest in R&D to maintain its most important differentiator – storage system performance – in terms of throughput. Unfortunately several of the original investors and board members declined to invest more, but upon close examination of the market and the continuing demand for high performance storage, the Meritech partnership led a recapitalization and restructuring.
As the largest investor and shareholder, Paul Madera assumed the additional role of non-executive Chairman and helped to mentor COO-turned-first-time-CEO Mike Gustafson and a number of new senior executives. And as head of compensation committee, Paul led the restructuring of the compensation philosophy to retain top talent that was rewarded based on performance and specific contributions to near-term performance metrics.
At same time Paul was a strong advocate for expanding the BlueArc suite of products to include investing in the development of a lower cost, high performance product for the NAS mid-market. In addition, he helped reposition the business to focus on landing a major distribution partnership that ultimately resulted in a worldwide OEM agreement with Hitachi Data Systems. BlueArc’s business began to take off, and consequently Paul helped to facilitate several rounds of additional financing and personally recruited investors to fund continued product development and an expansion of the sales force. When the IPO window opened for tech growth companies in 2010, Paul counseled management on benefits of a dual track process and then led selection of underwriters for an initial public offering.
As a result, BlueArc filed for an IPO in mid 2011 and then executed a successful merger with Hitachi Data Systems, resulting in a return of over 3.7x for Meritech. As a holder of more than 20% of the BlueArc equity, and as one of the largest Meritech investments in MCP II, this has been a meaningful outcome for MCP II LPs. From the time Meritech first invested until its exit in 2011 BlueArc’s revenue grew more than 10x, to over $100m in annual revenue, and BlueArc itself transformed from a raw start-up built on the promise of the world’s highest performance storage architecture into a worldwide corporation that delivers enterprise class network storage solutions to Fortune 1000 companies across the globe.