Solution Providers Leverage VC Firms As New Financing Source

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MK Capital has extensive experience with channel partners, especially managed services companies, said Bret Maxwell, managing partner at MK Capital.

"We understand how to build them and working the distribution channel is our core part," said Maxwell. "We spend a lot of time with them. It's like real estate -- location, location, location -- and so for us, it's people, people, people."

Investing in a company requires looking at a VAR's market segment, differentiation and growth opportunity. Finding the right company to invest in yields promising results, said Maxwell.

"We invest in them for four to seven years and they will grow 10 times the size than when we started -- a $3 million company turns into a $100 million company" said Maxwell. "We provide capital and then help them recruit, build out their teams and help them strategize, introduce them to banking relationships. We become their most trusted adviser, they respect our opinion and we add value."

Unitas Global, Los Angeles, recently closed a funding round with two VC firms, MK Capital and San Francisco-based Azure Capital, for a total of $5.7 million. Kirkwood said the funding will go toward expanding Unitas Global's sales and marketing operations, which he said were in dire need of capital.

"We formed a number of strategic partnerships from a sales-distribution standpoint and we found ourselves overwhelmed with the opportunity coming in," said Kirkwood. "We came to a situation where we didn't have the resources from a sales team perspective to address that and we needed to raise capital."

Unitas Global's decision to have MK capital and Azure Capital as its investors simply lies in their experience in the channel and confidence in the cloud, said Kirkwood. "MK Capital is relevant to our space because of their experience. They were one of the first investors for Exodus, a large data center [hosting] firm in the '90s, and Azure Capital were the first investors in VMware," he said.

The growth of cloud services has blurred the line between solution providers and vendors, and the rising tide of cloud interest appears to have also raised the channel. Derek Roos, CEO of Platform-as-a-Service provider Mendix, which recently closed $25 million in Series B funding for global expansion, sales and its product expansion, said the cloud is "hot and getting hotter."

Roose said he hasn't had any problem securing funding for his cloud business; in fact, financiers have been approaching him, asking if they can also become investors in his company, he said.

However, according to Roos, a company that is solely cloud-focused isn't guaranteed financing and success. "It puts you in the spotlight but it doesn't mean you're a good business to invest in," said Roos.

There's a lot of opportunity for the cloud ahead, Roos said. "My perspective is that we are still in the early days of cloud," Roos said. "I think the best is still ahead of us."

Channel financing through VC firms will continue, as long as there is opportunity to grow within a company, said Frank Vitagliano, vice president of North American channel sales at Dell, during the CRN roundtable discussion with channel chiefs.

"The fact that the VCs are playing now [in the channel] and they really have never played there before is really a testament to the fact that this thing is a big opportunity," he said. "They've started to realize that there's money to be made here."



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