Photo: Shashi Kiran and Dan Maloney

Being actively associated with the startup ecosystem for several years now and having worked in bigger corporations for over 15 years, I’m often asked what the recipe for startup success is and if there is a formula for a successful exit. Such questions often come from first-time founders or key employees in startups who are looking forward to cashing in on their sweat equity.

As most hardened entrepreneurs can attest, there is no magic formula. For a startup to succeed, an infinite number of elements have to click into place and the chances of things going horribly wrong are an order of magnitude higher than them going right. Success is also defined by different metrics and is very relative.

Therefore, rather than having a generic response, then I thought it would be good to answer such a question putting a recent exit in the spotlight.

October 2017 marked the 200th acquisition for Cisco the networking and IT infrastructure behemoth. It is a company I served in several executive roles for the greater part of a decade and was fortunate to participate in onboarding a few high profile acquisitions during my time there. As most observers know, Cisco’s recent acquisitions have focused on software and subscription revenues, as it has attempted to shift its product and revenue mix. In keeping with this trend, the 200th company it acquired into its AppDynamics team was Perspica – a gritty software startup focused on performance analytics built on a foundation of artificial intelligence and machine learning. Incidentally, I also had the pleasure of working with the Perspica team last year in an advisory capacity to the Fabric, which was the seed investor and co-creator of the company. I, therefore, had an opportunity to observe the team in action at close quarters before they raised their Series A. This was a period of product hardening and early customer adoptions.

To look into the Perspica acquisition in hindsight and dissect its success, I view the acquisition as not an end onto itself, but as the culmination of a series of events from its inception in 2014. Furthermore, the journeys of many startups don’t necessarily end upon their acquisition – I’ve in fact seen many journeys actually begin upon acquisition. But more on that later.

What went right for Perspica? Was there a formula for its success?

Having observed Perspica before and after its Series A funding round, I can say it went through its own share of twists and turns, but eventually quite a few things “clicked as viewed in the rear view mirror.

Here are five of them:
1. The idea was good and the timing was right
As Victor Hugo once said, “Nothing is as powerful as an idea whose time has come”. IT operations and analytics (ITOA) is a big deal today.

In the technology space, as every company is moving fast, there is a tendency to break things, either by design or inadvertently. Invariably when things do break, it is important to detect issues regardless of whether they’re in the infrastructure or application stack. Analyzing performance issues with machine learning and artificial intelligence (AI) capabilities, detecting the root cause in an automated manner, and more importantly proactively predicting when something similar might occur can give businesses a tremendous advantage to get ahead of issues and minimize downtime that could be business impacting. In a nutshell, this is what Perspica did and where AppDynamic saw the most synergy with their own offering, as no doubt Cisco originally saw with AppDynamics itself. Some companies create compelling technology but the time the market wrong. With other companies, it is the reverse. Here the market timing and window of opportunity were in alignment.

2. The core technology team was rock solid
Perspica went through typical startup churn, including changes in executive leadership early on. Fortunately, it had a strong bench strength and differentiated technology. There were the typical rollercoaster moments of a startup including raising funding, creating a product-market fit and gaining early customer traction. Through this all, the core team kept their focus and ensured the founding vision was preserved. JF Huard, the CTO and the rest of the team continued to serve as the backbone of the company, preserving the vision and continuing to build upon it.

3. The leadership was world class
Dan Maloney, the CEO deserves true chops. I worked with Dan briefly and we had a few brainstorming sessions together. You could feel the energy shift when Dan walked into the room. He was full of ideas, straightforward and authentic. He brought the big company experience coming from companies like SAP. At the same time, he injected clarity, enthusiasm and a sense of urgency to Perspica. The culture of any company, big or small is often a result of the CEO and I often call the CEO as the Chief Energy Officer. Dan was certainly deserving of that title and a breath of fresh air.

4. Luck was on their side
Early on, Perspica were engaged in discussions with the AppDynamics team to partner and integrate with their offering. But the AppDynamics team saw value in Perspica’s technology to complement their own and became interested in acquiring them. Despite talks being at an advanced level, things suddenly stalled and they went radio silent. It turned out that AppDynamics themselves were acquired by Cisco in a $3.7B play. Startups can often be subject to uncertainty in a hot-warm-cold engagement the outcome of which can often go in different directions. In this case, post their acquisition by Cisco, the AppDynamics team were still interested in the Perspica technology and resumed conversations under the Cisco umbrella once the dust settled on their own acquisition.

5. The co-creation model of the Fabric came through
The Fabric was set up with the vision of co-creating innovative companies in the cloud networking space. Accordingly, one of the distinct elements of the Fabric’s portfolio companies is not just the ability to get ideas off the ground with early-stage backing, but rather the ability to crystallize the idea from an embryonic phase to where the problem statement mapping and product fit are quite hardened. This evolution is not easy and this is when many startups flounder. By rushing into a solution too quickly, or without adequate focus, they spread themselves too thin, or build something without adequate validation and run the risk of missing the mark on solving a genuine problem or creating a genuine opportunity. For entrepreneurs, the co-creation model de-risks this phase, by allowing for ideas, business models, and teams to harden while proving product-market fit.

At the same time, the model also allows venture capitalists to fund a company at a Series A stage or later knowing that a tremendous amount of qualification has gone in and therefore the “chance factor” for success is reduced and the “success factor” of chance is increased. This vision of the Fabric founders came through with Perspica, as it did with other companies like VeloCloud, IoTium, Appcito, and others.

It is good to see Perspica land under the wings of AppDynamics team within Cisco. AppDynamics is itself a poster child for startup success, where they not only created an ideal product market fit but scaled that idea into tens of thousands of successful deployments and offered a high-value exit to its founders, employees, and investors. Now under the Cisco umbrella, they can only go further and higher. Eventually, any acquisition is a success when it starts delivering true value to stakeholders. I believe the Perspica team and technology will be hugely additive to AppDynamics and deliver even more value to Cisco’s customers with the joint solution. I wish them the very best.