Posted by Tyler Shields on January 28, 2014
It's hard to believe that a company could burn through $225 MILLION dollars in 11 months, but it looks like that may have been exactly what AirWatch did. According to data released by AirWatch and written by financial analysts (links to all data sources at bottom of post), AirWatch likely had burned through nearly all of its available cash in record time. Based on an assumption of $120K burn per employee (fully loaded) per year and an assumed removal of $50M in equity at the time of the venture round, AirWatch would have had somewhere between 5 and 6 months of runway left as of January 2014. These assumptions are corroborated by the fact that VMware has contractually extended AirWatch an offer to provide a bridge loan if the acquisition deal does not close in the next 6 months.
What did AirWatch do wrong? It sounds like they may have made some over-assumptions with regards to their growth rates for 2013. It could have possibly been the adoption rates in countries outside of North America. It may have just been bad luck. Or it could even be a cooling off of interest in mobile device management technologies based on containerization. We won't know exactly why they were getting near the end of the runway, but what we can say is that VMware may have overpaid in multiple. Based on the data provided by VMware of AirWatch bookings for 2013, VMware paid somewhere around 16x bookings for AirWatch. Man, that's a lot of bread!
In a fast moving technology market such as mobile security, enterprises must use vendor financial data to help them decide on a vision for their security purchases. I'm not suggesting that you should never buy from a small innovative startup company for fear of them having an acquisition or crash landing. What I am suggesting is that the most educated enterprise buyers become intimate with the financials of the companies creating your solution suites and understand how the potential exit options effect your long-term strategy. There is added risk in small companies; however, many times, the innovation and speed of execution completely outweigh that risk. Understanding the risk of the technology and vendor is something every security and BT executive should learn how to do.
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