Vendors backed by VCs are shunning away from MSPs – Why?

Recently we are hearing news about various M&A’s in the MSP industry where VCs played a predominant role and the recent one being Kaseya which was took over by Insight Venture Partners – The same group that has also invested in companies like GFI, Acronis, and Parallels etc… Just weeks before that we heard news about AVG buying Level Platforms for an undisclosed amount and Solar Winds acquiring N-Able for $120 million. Everyone started to speculate on whether standalone RMM / Managed services is dead and market is heading towards platform diversification.

We see it otherwise. Companies that got bought simply peaked in their ability to grow fast. People who have been in the MSP industry for quite some time understand that this part of channel segment (MSP) can scale only up to a certain level and after which you hit a roadblock – That is because the service providers they in turn target as customers don’t have the urge to grow faster. Vendors backed by VCs reach an inflection point here as they try to ‘Grow Faster’ while service providers are trying to grow their business organically. At this stage companies are left with no other option other than to focus more on business segment directly which is kind of anti-channel – a trend we are already witnessing with few companies.

I am recalling an interview by Gerald Blackie to MSPmentor where he stated his intention to remain self-funded and create a “lifestyle business” and by maintaining control, Kaseya could focus more on customers (MSPs) rather than VC demands. That was in 2008.

In 2011, on a different interview, Mark Sutherland, (formed president of Kaseya) states that “Kaseya enjoys watching rivals (A) get acquired or (B) pursue IPOs because those paths can make a company lose its focus”

Fast forwarding to 2013 things have changed a lot w.r.t Kaseya – we all know what happened. We have already blogged about a similar instance with another company and time in again it proves that fast growth through VC funding’ business model doesn’t scale well in the MSP segment. Off late we are also seeing many Enterprise vendors jumping in the MSP market targeting service providers. We all know – this market is not yet ready for Enterprise play.

There is also an possible confusion amongst MSPs on what they should expect from a event something like the Kaseya’s acquisition by VCs. Though they are hoping for the best from some of these deals as they don’t want any trouble with their present service offering. Here is an MSP talking about what he thinks on Kaseya’s acquisition – “I hope it doesn’t get worse. If it gets worse, then that will be a problem for me, but I do think it will be pretty stable” – Said Chris Wise, CEO of TechSquad IT in an article to SMBNation

When serving MSP market segment it is important to maintain a business model similar to that of MSPs where we grow organically. That is one reason why Vembu remains private and independent .There is no pressure for us to grow fast and hence we constantly evolve and serve the channel with new enhancements on a regular basis.   We will be here to serve the channel and come up with new innovative products for our customers. As long as we constantly innovate and provide quality products to customers at an affordable price point and remain dedicated and focused, we are confident on winning big in the long run.

Would be interested to see if this M&A trend continues to PSA and Backup & Disaster Recovery platforms as well. Keeping fingers crossed.

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  • Mark Taylor

    Good Article. Though we strongly doubt Kaseya’s channel strategy going forward, we are still hoping for the best

    • Len Srinivasan

      Thanks Mark. Please do keep us posted on your Kaseya experience…

  • Adam Slutskin

    Very interesting article. It will be interesting to see how the enterprise software companies attempt to build and maintain tight relationships with the channel. I feel we (ConnectWise Capital/Modern Office) are similar to Vembu in the sense that we have no outside funding and are private. It allows us to stay very focused about what we are most passionate about – the IT Services community. Before we do anything, we always ask ourselves how will it will affect our community and how will they benefit.

    Thanks for the read!

    • Len Srinivasan

      Thanks for your insightful comment. Intel Hybrid Cloud is a good example on what happens to Enterprise Solutions focusing on MSPs. It’s not a commodity play. There has to be a dedicated and well thought channel program and lot of patience to sustain in this industry