For Norwest Venture Partners, Virtela’s Sale to NTT Makes 2013 Even Better
October 29, 2013

Yesterday NTT Communications Corporation announced that it has agreed to acquire NVP portfolio company Virtela. This is a very meaningful exit for NVP, particularly because of our long history with the company and NVP General Partner Vab Goel’s ongoing perseverance and leadership in building Virtela over the years.

The company was founded and incubated by Vab over a decade ago. He served as founding CEO and Chairman, and currently serves as a board member.  I provided the initial funding to the company, and today I serve on the board of directors as Chairman.

I remember the day that Vab came into my office to tell me that he wanted to start a new company. He believed this startup could help companies break free from the constraints of traditional network architectures and services. He was a venture partner at NVP at the time. It was a big bet on a huge vision, but we both knew the potential was immense and decided to incubate the company back in 2000.

We are all proud that this little networking focused startup based in Denver has today grown to be a 400-employee, 500-customer, successful global enterprise services cloud leader.

This acquisition of Virtela, as well as the Cyan IPO earlier this year, underscore the tremendous opportunity we see for the transformation of the networking sector. The worldwide Software Defined Networking (SDN) market for the enterprise and cloud service provider segment alone is forecasted to grow from $360 million in 2013 to $3.7 billion by 2016. We continue to focus on this growing area as proven by our investments in such growing SDN leaders at Pertino and ConteXtream.

We couldn’t be more excited about today’s outcome. I’d like to thank and recognize Vab for all of his hard work– particularly the time he has spent guiding this company in Denver (and globally). Virtela employees, partners, customers and co-investors have been the unwavering power behind Virtela, and all of their hard work is being recognized today.

Below is some additional color on the acquisition based on a conversation I had with Deborah Gage of The Wall Street Journal yesterday.

For Norwest Venture Partners, Virtela’s Sale to NTT Makes 2013 Even Better

 

NTT Communications’ agreement to acquire the cloud-networking company Virtela Technology Services provides a 6x return for its largest shareholder, Norwest Venture Partners, and represents the firm’s eighth portfolio company to either sell or go public this year.

NTT paid about $525 million in cash for Virtela, which had raised about $100 million in funding to move branch-office networking and security services to the cloud.

Virtela was incubated starting in 2000 by NVP General Partner Vab Goel, a former engineer at Qwest Communications who started the company with a group of former colleagues who had left Qwest, according to NVP Senior Managing Partner and Virtela Chairman Promod Haque.

Venture Capital Dispatch talked to Mr. Haque about why NVP stuck with Virtela through the ups and downs of financial cycles and why 2013 so far has been a good year for NVP. The conversation has been edited.

What did NVP first see in Virtela, and why did you stick with them for so long?

What we saw back then, and what is finally starting to come to fruition in a big way, was the networking, which we’ve always believed in.

As we went through 2001 and later on, we felt that virtualization will eventually happen. It was the early days of VMware, and we could see how virtualization was happening in the hardware arena where the operating system and physical servers were starting to get virtualized.

We felt that a very similar thing would happen in networking, that it was just a matter of time, and at the same time, you cannot say with 100% certainty, so there was a lot of risk. That’s the venture model anyway—you can’t project when, but you believe it is, so you try to get way ahead of everyone else and back this.

Did you consider taking Virtela public? (NVP this year has had three other IPOs—FireEye, RetailMeNot and Cyan)

We did consider an IPO, but we also sort of looked at it and said, we’ve been in this company for awhile and here’s an opportunity to get liquidity through a large established player like NTT. A lot of these telcos around the world, Virtela has been doing business with them. We were buying circuits from them in Japan, and when some of their corporations would be looking to expand outside Japan and have branch offices in the rest of the world, they would come to us. As cloud networking began to take off, and virtualization in the networking space, it became very apparent that here’s a company they wanted.

What does NVP’s success so far this year say about the market for enterprise technology?

Over the last three to five years there have not been a lot of exits in the enterprise sector, but with the advent of cloud and virtualization of the network—software-defined networking–collectively you’re seeing a lot of innovation happening, and you’re also seeing a bunch of stuff in big data analytics.

To a large extent, companies have to update their infrastructure to get more familiar with the usage of cloud and the changing landscape in the networking space. There’s new tech being added in the enterprise sector, and a lot of companies are getting created, and there are IPOs and companies being acquired, and the whole space is very ripe now.

I think it will go on for awhile. These cycles are long, it’s generally a four-to-six-year cycle. And at the same time we continue to see a lot of interest in the consumer Internet space.

This Q&A originally appeared in The Wall Street Journal’s Venture Capital Dispatch.

 

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