A Case Study In Inclusivity On Investor, Board and Executive Teams
Juniper Networks has finalized its successful cash purchase of 128 Technology for $500 million in consideration — $450 million for investors and $50 million for employees — the second-largest acquisition of a startup in the steadily growing SD-WAN space in 2020. (See Notes 1, 2, 3)
128 Technology’s exit is one of ten or so SD-WAN exits this year, after COVID-19 scattered employees and spiked enterprise demand for remote workplace security and speed. A deeper look into the space reveals the company as an outlier for a couple of reasons, beginning with the performance CEO Andy Ory and COO Patrick MeLampy delivered for investors:
128 Technology raised $96.7 million in four rounds of venture capital financing and exited in just six years. The company delivered multiples on invested capital (MOICs) of 2–4.65x and net IRRs of 31% to 86%, depending upon which round an investor joined, according to an assessment by Frank, Rimerman + Co. LLP. (See Note 4)
The company also is unusual because of the number of women involved as investors and as executive operators. Of the ten start-ups listed in Figure 1, 128 Technology is the only one with:
A major investor and board director who is a woman, Sonja Hoel Perkins, along with five other investors who are women, four of whom are Broadway Angels; (Note 5)
A leadership team that includes multiple women: President Sue Graham Johnston, who oversees all business functions, and Harleigh Durkin, who leads human resources. (Note 6)
How did this investing and operating gender diversity happen, in the male-dominated deep end of the technology networking pool — and did it make a difference to 128 Technology’s exit?
Short answer: Yes, says CEO Ory. (Note 7)
The longer answer and interesting history of this deal began nearly three decades ago when Co-founders Ory and MeLampy started their first company, Priority Call Management (PCM). Guess who their first investor was? Sonja Hoel Perkins — then Sonja Hoel. She and Ory were both 28 years old. The trio met after a salesman, Ben Minsk, pitched PCM’s enhanced voice services to Perkins. At the time, she was driving two hours a day from her apartment in San Francisco to her position as an associate with Menlo Ventures on Sand Hill Road near Stanford University. “I LOVED the concept of a single phone number where your home, office and cell would ring on one device,” Perkins remembers. “It was so efficient.” (Note 8)
She convinced the partners at Menlo Ventures to invest in 1995. Partner Tom Bredt joined the board, with Perkins as a board observer. PCM was positioned to go public but ultimately sold four years later to LHS Group Inc. for $162 million, an average MOIC of 5.4x. (Note 9)
(As noted above in Figure 1, since multiples on invested capital (MOIC) vary by company stage, and these are not disclosed, I’m using an average MOIC at exit to indicate performance for investors.) Ory’s and MeLampy’s next company, Acme Packet, had an even bigger exit, but not before they encountered the kind of challenging market conditions — from 9/11 to the Great Recession — that forced investors to reveal their true interest in entrepreneurs and companies. Acme’s vision was to provide voice, data and communications services and applications across IP networks to telecommunications service providers and enterprises. Then a general partner at Menlo Ventures, Perkins personally invested in the Series A, a friends and family round only, and then led the first institutional round of $16M. (Note 10)
Then the telecommunications market crashed and Acme ran out of money. “In 2003, it melted down and one of our VCs actually took our logo off their website,” Ory says. “Sonja went to her partners. She was a real supporter. I don’t think her partners even knew how much support she was giving.” “I gulped and offered to support the company at the last round price,” Perkins remembers. She describes her decision-making process as:
Do we still believe in the market?
Do we still believe the produce will be #1?
Do we still believe in the team?
“The answer was yes to all,” Perkins says. “I also believed a down round would hurt the reputation of the company, making it harder to close customers, attract employees and gain good coverage in the press.” Perkins served on the board of directors; internally, the highest ranking woman was Erin Madeiros, who ran all of systems engineering and customer service, reporting to CEO Ory.
Ultimately Acme Packet made it through, raising $49.5 million, going public, achieving an all-time high valuation of more than $5 billion before selling to Oracle Corp in 2013 for $2.1 billion, an average MOIC of 42.4x. (Note 11)
After their second successful exit, Ory and MeLampy “tried to retire,” Ory says, but it didn’t stick. In 2014, as Perkins was seeking start-up investments focused on improving Internet infrastructure and security, rather than adding more traffic, they called to tell her about their new company.
“It was like the Pina Colada song,” remembers Perkins. “I was looking for a company and here was ‘my own lovely lady’ right in front of me!” The Perkins Fund took half the Series A round, alongside G20 Ventures, a fund co-founded by a former PCM employee, Bob Hower. Together the two funds ultimately became 128 Technology’s two major investors in each investment round, Series A through D. (Note 12)
In every round, Perkins asked Ory to make room for interested members of Broadway Angels. He said yes.
“She went to great lengths to try to squeeze in a couple Broadway Angels in a wildly oversubscribed “insider” round (which was otherwise only for folks well known to the entrepreneurs),” wrote Ellen Levy in a congratulations email. Levy invested alongside Karen Boezi, Katherine August-deWilde, Magdalena Yesil. (One other woman invested in the company: Ory’s mother, Marge.) (Note 13)
“It’s such a testament to the strength of Broadway Angels, but an even bigger testament to Sonja and her talent/foresight/determination to bring others along with her,” added Levy.
“She was incredibly gutsy here,” says Investor Boezi. “Sonja was effectively an institutional investor. It was evidence of how much she believed in the [128 Technology] team, in what they were doing, and, also, I think it was evidence of how much she trusted her own instincts.” Why didn’t the co-founders seek a Sand Hill Road brand-name VC fund for their third venture?
“I didn’t go get capital from a Top 10 fund because I didn’t need it. I was the primary funder,” says Ory. “I didn’t see a lot of value in where the capital was coming from. I’ve learned with Sonja. She is a believer. She is indefatigable. I have found her to be one of the most can-do people to work with. There’s not a single instance where she has let me down.”
Boezi remembers watching the team work together and the value Perkins added.
“As a non-technical person, I struggled to understand the company’s business,” says Boezi, whose specialty is healthcare investing. “I saw their slide deck before she [Perkins] worked with them and it was like Russian to me. Then I heard their presentation afterwards and I understood the importance of 128’s technology. That’s Sonja’s magic. You can’t recognize value unless you tell a great story, like she can.” (Note 14)
In 2017, the team decided to hire an operations lead so Ory and MeLampy could focus on sales and evangelism. Both co-founders wanted to hire a woman. Why?
“Gender diversity really matters. We can argue why it is, but it’s a fact,” says Ory. “I’ve really had women in consequential leadership roles. I also believe gender diversity is really important at the board level. Not all women and not all men think alike, [but] with guys there’s like a groupthink on how one gender thinks about something. Sonja right away was a help by bringing a woman’s perspective.”
MeLampy had worked with Sue Graham Johnston at Oracle, and she quickly became the co-founders’ top choice. “Patrick knew Sue from Oracle but I had not met her,” Ory remembers. “We were really looking for a chief operating officer. But when I met Sue I saw that making her president and having the functions all report to her (as opposed to being a COO) would really empower her and allow her to make a big difference to the organization,” says Ory.
“They had Sue as their top candidate and, luckily, she accepted,” remembers Perkins.
The rest is history, culminating in Juniper’s acquisition. “There is no question that moving from PCM to Acme Packet to 128 Technology was a progression of increased diversification and more senior leadership roles for women,” says Ory. “Sue also made a point of racial diversity too. And we tracked that information and actually made quite a bit of progress. If you don’t measure it and there isn’t a goal you just don’t end up there by accident.”