Wily+Timestock=Customer Transaction Quality

Last week Wily Technology acquired one of our companies – Timestock. This acquisition should be a textbook example of a great fit.

When we met Timestock, a year and a half ago, we saw enormous potential in what they were doing to 'close the loop' between business objectives and IT execution. Over time, we pushed the Company to re-position themselves around the concept of Customer Transaction Quality, pulling measurement and remediation out of IT Operations and into the line of business where it really matters. The result was a strong enterprise value proposition and higher average selling prices than most other application performance management products.

Wily is a solid, growing, profitable enterprise software company selling a great J2EE management tool. Their customer list is as impressive as their management team.

This is great fit both financially and strategically. Timestock was very capital efficient. In fact, the Company only raised a small Series A investment (Leapfrog was the only investor). But on that investment they managed to build a terrific product and get some major reference customers. In this market, customers like e*Trade, Cingular, GE, Network Appliance, and Xerox don’t generally buy from tiny companies, unless the companies have great products. Timestock did.

Wily now has a really compelling product line story, being able to follow the transaction from the customer all the way down into the deep enterprise infrastructure. The synergies are enormous. Timestock could instrument the customer transactions (e.g. stock purchases for e*Trade) and tell which ones were failing, who is affected, and the cost. Wily’s products can take that defect and isolate the root cause in the infrastructure. The points of integration are obvious and really valuable.

Financially, this made sense, too. Often startups raise too much money early on. Raising too much money actually limits your early exit options by raising the bar that has to be crossed. (The Timestock team actually had another offer to raise more cash at a higher valuation in their series A, but they understood the cost of overfunding – lower ownership, higher bar. So they took our offer.) Timestock was raising a Series B investment when they met Wily. The use of the Series B was to begin to build out the sales channel, management team, and scale the Company.

There is always serious execution risk in building out the enterprise past the first few customers. It’s a risk worth taking if two conditions hold. First, if there enough core skills in the Company to reasonably execute that growth. Second, if you can reasonably expect you are building enterprise value that would be captured in an exit-by-acquisition.

But often the capital spent to build a channel is of limited value to most acquirers. The acquirer usually already has a channel. So if you are building a channel of your own in the enterprise software business, you are committing to an exit by IPO – a very tough proposition these days. (However, you may need to build enough of a channel to get an acquirer’s attention.)

Most small companies raise the A to build the product and a B round to get the first few customers. So they face this build the channel or sell question after considerably more money has been invested – read ‘dilution’. But this one was special. Timestock was efficient and effective in building a great product. The product team was just awesome. They build an unbelieveably scaleable, robust, and easy-to-install product.

Wily should see a very quickly integration of the team and accelerate growth by presenting the product to the installed base. The added plus is that the elegant end-to-end story should help drive a new wave of customers to adopt Wily over IBM, Mercury, and others.

Congratulations to the whole team.