SEE ALSO: Ecommerce as an Opportunity for Service Providers

Ongair employees hacked together a system of wire-transfer services and web payments tools from PayPal Holdings Inc. to facilitate transactions from around the globe. But Kimenye said he was spending way too much time studying the complexities of foreign-exchange currency markets: “I was becoming a forex guru.” He considered switching to Stripe Inc., but the San Francisco startup, which makes payments tools that are popular with coders in the Valley, doesn’t service Kenya.

So Stripe helped him incorporate in the U.S. through a new program called Atlas. “When we automatically took money for the first time from a credit card, everyone in the office was like, ‘Wow,’” Kimenye said. “We felt it had leveled the playing field for us with other companies in the Valley or in Europe. It was no longer holding us back.”

Stripe has been slowly rolling out Atlas over the last three months, pitching it as a startup in a box. For a $500 fee, an aspiring entrepreneur can get the paperwork needed to incorporate in Delaware, a business account with Silicon Valley Bank, connections to American law and consulting firms, and a Stripe account to accept payments online. So far, Stripe has welcomed 440 startups from 91 countries into Atlas. Stripe said it has received applications from entrepreneurs in just about every country in the world but declined to disclose the number of applicants.

READ MORE: Apple Pay Introduces Long-Awaited Option for Websites

Atlas provides a way for Stripe to make customers come to its home country, instead of having to go to them. Stripe works only with businesses based in 25 countries, mostly developed economies, because establishing operations in a new place can involve coordination with local banks, custom technical work, and language localization. Atlas helps Stripe reach developing markets without having to go through the costly process of opening in each one. While Atlas startups aren’t required to use Stripe to process payments, most likely will. Stripe, a venture-backed startup valued at $5 billion, will take a cut of each transaction—which could grow to become a big revenue stream if the companies take off.

Patrick Collison, chief executive officer and co-founder of Stripe, said Atlas can help his company gain the loyalty of a growing set of global entrepreneurs. Their governments should like Atlas, too, he said. The program serves as an alternative to sucking entrepreneurial talent away from emerging markets. “When you discover it’s extremely difficult to start a business or gain access to Stripe in your home country, for many people the easiest response to that is to leave and move to where it is,” Collison said. Stripe said most Atlas participants plan to stay in their home countries.

Stripe surveyed Atlas companies and found that 42 percent were incorporating as a business for the first time, while 20 percent had previously tried unsuccessfully to incorporate in the U.S. They said Atlas simplifies a complicated procedure that otherwise would involve flying to the U.S. to meet with banks and lawyers.

As the wait list for Atlas grows, Stripe declined to say when it plans to open the floodgates. The company said it’s still refining the application process. Stripe underestimated how many questions startups would have when signing up. Several applicants found a phone number listed in some of Stripe’s automated e-mails, which belonged to a leader on the Atlas project, and sent him a barrage of messages through WhatsApp: Do we need a U.S. business address? How many shares should we issue through our new company? What do the different roles on a board of directors do?

To address common issues, Stripe added suggestions inside the sign-up form and to an ever-growing list of frequently asked questions. The goal is to help a startup fill out the form and submit electronically signed documents over the course of a few days. Eventually, any company should be able to join Atlas as long as it doesn’t violate Stripe’s rules prohibiting activities such as drug paraphernalia, gambling, pornography, and pyramid schemes. “There are enough gatekeepers and sources of requisite permission in the world,” Collison said. “We don’t want to introduce more.”

Atlas startups are also hoping their presence in the U.S. will help them attract venture capital. Most said they plan to seek funding in the next year, according to Stripe’s study. Paulo Tenorio, who started Brazilian marketing company Trakto, is hoping Atlas will make his startup more desirable to American venture capitalists after getting turned away in the past. “I’m going to say, ‘I have the legal presence you need here. I can be here in a day. I can spend months here,’” Tenorio said. “I’m going to try it out.”

Source: TheWHIR

READ MORE: Security, Cloud Computing Remain CIO Budget Priorities: Report

The results were taken from a survey of decision makers and network managers and administrators in the US and UK at companies of 250 or more employees. They show a split between industry verticals, with for instance companies in health care and related fields slightly more likely to have workloads in the cloud, whether those workloads are mission-critical, test/development, or storage.

Virtualization deployment can noticeably benefit the organization’s bottom line according to 88 percent of respondents, and half expect cloud to deliver greater tangible benefits and ROI this year.

While migration concerns likewise vary between industries, data security and breaches, monitoring and visibility, and infrastructure-wide security and control are all concerns for between 50 and 70 percent of companies in several different industries.

SEE ALSO: Cloud Computing’s Connection With Software-Defined Networking

Almost one-third of those moving workloads to public cloud this year intend to use Azure (32 percent), well ahead of VMware vCloud Air at 24 percent and AWS at 22 percent.

The study also includes positive news for providers of specific services, as automation is seen as a key to large scale SDDC deployments by 9 out of 10, while disaster recovery is the workload most likely to be moved over to the cloud according to 64 percent.

The high adoption numbers indicate that the steep incline in public cloud revenues will continue for the foreseeable future.

Source: TheWHIR

“These functions normally take hundreds of man hours,” the Department of Defense noted in a statement. “The entire cost of the Hack the Pentagon pilot was $150,000, with about half going to the hackers themselves.”

READ MORE: Department of Defense Updates Cloud Security Requirements Guide

Not a bad return on investment, apparently, and it’s a strategy the DoD plans to expand on in the future.

“The U.S. Government is constantly under attack by hackers, and DoD is no exception. DoD information and networks have been compromised in the past through unpatched or unknown vulnerabilities in websites,” the department’s report noted. “We believe the concept will be successful when applied to many or all of DoD’s other security challenges. That’s why starting this month DoD is embarking on three follow-on initiatives.”

Those initiatives include:

• Developing a responsible disclosure policy, so that in the future attackers can report security flaws “without fear of prosecution.”
• Expanding bug bounty programs to other components in an ongoing way.
• Provide incentives for contractors to use bug bounties and code review processes to root out security problems before deployment.

With over 1,819 vulnerability reports (the 138 referenced above were the validated ones), the Pentagon seems pleased with the results.

“DoD will capitalize on its success and continue to evolve the way we secure DoD networks, systems, and information,” the agency stated.

Source: TheWHIR

There are thousands of nuances between the sellers and the buyers. Each type of consideration has its strengths, weaknesses, needs and in many respects, it’s own personality. The nature of the consideration can also dictate both long and short-term relationships between buyer and seller.

Everything paid at closing is considered closing consideration, and after that magic date it becomes post-closing consideration. Here are a few choices to consider:

1. Cash: I prefer cash, and my clients prefer cash. Buyers often try to use as little cash as possible. Successful acquirers usually play in the primary cash arena. They either have, or have raised cash and have successful operations. Usually, these firms take the acquisition process very seriously. It is easy to bargain with cash. Cash is taken seriously by all parties. On a chessboard cash is the King.

2. Installment payment: This is similar to a Seller’s Note (see #3) but I include it here because of terminology. In installment transactions a large amount of the purchase price is paid over a period of time. Think less than 50 percent cash down, possibly even zero, and the rest as regular payment towards the purchase price. This could be monthly, quarterly or annually. Different than a note in that it usually does not include interest. The final installment is often a larger balloon payment. For example, in a $10 million acquisition, $2 million down, $500k quarterly payments for two years ($2 +$4=$6), followed by a $4 million balloon payment.

3. Seller’s note: The seller, in essence, is a providing mezzanine financing, although they may be subordinate to a buyer’s lender. It is a loan in the transaction of part of the purchase price back to the buyer by the seller. Buyers often like this as in some sense the seller has some skin in the game and wants the transaction to succeed. Sellers conversely wonder if they will ever be paid back and need to consider the financial background, and reputation on the buyer. The reason I am differentiating the Sellers note from a Installment payment is I see it as “filling in the gap”. The seller will only take $10 million and you only have $9 million, enter a potential $1 million seller’s note. You can imagine a whole range of scenarios; equal payments for x months or years, balloon payments, interest rates and the like. As you would suspect sellers want shorter terms and buyers longer terms.

4. Assumed Liabilities: Assumed liabilities is a financial commitment lifted off the shoulders to the seller and transferred to the Buyer. This does not include, at least for deal valuation purposes, ongoing operational issues such as assumed leases or the postage machine that are necessary to operate the company post-closing. But would include server leases.

In a stock transaction, the buyer is often assuming certain balance sheet liabilities, including payables all of which are detailed in the purchase agreement. Certain items such as long-term debt is typically paid off at close from that cash consideration. However, if there is assumed debt outside of ongoing operational issues that were assumed it is considered part of the overall consideration. In stock transactions expect that there should be enough cash left in the accounts to cover all pre-close operational liabilities.

5. Cash on hand: For some reason in a stock transaction many owners do not realize they have substantial cash in the bank that really should be distributed to current shareholders before the sale leaving enough funds in the account to cover current payables and normal working capital. Keeping your money may not be a consideration but may seem like it if a third-party, like me, brings it to your attention. Buyers that can retain cash on hand more than normal operation expense, pre vs. post closing, may have just sweetened the acquisition in their favor. Looking back this becomes more of a seller issue as we should have addressed this long before the buyer arrived on the scene.

6. Deferred Revenues: In shared hosting transactions this is often the elephant in the room. I am known for my concerns about deferred revenues and have often spoken to this topic at conferences as well as a subject of several of my WHIR blogs. Deferred revenues are those funds paid in advance by a customer for services. As an example, a shared hosting companies lowest plan is $5 a month. However, a client needs to pay three years in advance to purchase this plan, a total of $180. Technically these funds when received should go on the balance sheet as deferred revenue as a cash asset and is offset as a deferred liability. Every month $5 is realized and indicated on the operating statement as income, and correspondingly on the balance sheet both the deferred cash account and deferred liability are reduced appropriately.

In practicality, that hardly is ever the case. The $180 goes into the deposit account for today’s operations, not to fund future operations primarily contracted by the hosting company to its customer. Often a very large portion of the customer revenues pay for affiliate programs may eat up a significant amount of that revenue, often over $100 for each new account gained in this method.

As a consideration item, deferred revenues become a bit of a conundrum. At the end of the first year of a customer’s three-year contract, $120 should be in a depository account. If sold at this period the buyer should receive $120 for the next two years operations and profits attributed to that customer.

In the transaction, deferred revenues cannot be ignored. Why? Because there are customers expecting service.

So how should they be treated in this series on how to buy a hosting company?

Deferred accounts are in essence always assumed by the buyer as it will need to provide to service to that customer. The question is how this is treated in the purchase price of the transaction.

The buyer should be very clear up-front regarding how deferred revenues are handled in the transaction. This becomes a function of phraseology in the letter of intent. Here are two examples that demonstrate the valuation principal:

“I am buying your business for $10 million cash and I am assuming all of your deferred liability.”

or,

“I am buying your business for $12 million cash. Such price will be reduced dollar for dollar for deferred customer liabilities as of the closing date, currently estimated at $2 million.”

As a buyer, you will decide the value and how to treat this. It should not become a surprise. I could go on for hours outlining the debate between a buyer and a seller regarding the treatment of deferred revenue.

7. Seller’s carried interest: The buyer offers the seller to stay in as a part owner. This can assist in the financing, lower leverage or even provide a level of confidence to your funding sources. A major question you should ask yourself is how long do you want to be involved with the seller.

8. Conditional Consideration: This is not a legal term but a description of the scenario in which you agree with your seller that a certain sum will be payable upon a particular event occurring.

To give an example, a worldwide data center has a contract with a Fortune 500 firm that represents 20 percent its annual revenue. The contract is up for a three-year renewal six months after the close. The acquisition valuation was based on this contract, revenue stream, and profits. If the contract were to be lost, the business would be worth considerably less. A conditional payment crafted around this contract is where this is heading. For a buyer, in this case, it can act as a deferred payment and is underwriting the-the transaction at closing. Consider a kicker to the seller if the contract exceeds expectations.

9. Earn-Out: Earn-outs are more often used in smaller transactions. At one seminar I listened for 20 minutes while the buyer outlined how he structured a $50k annual revenue shared hosting transaction. Often these transactions are simply zero dollars down transactions, and the buyer pays a percentage of revenues collected from the purchase of the accounts for a specified period or until a total dollar amount is paid.

10. Earn-Out as in Performance: This covers the scenario in which part of the purchase price is linked to the future performance of the business. It is frequently linked to profits as in EBITDA but could also be linked to other financial measures such as general revenue growth, successful migration from one data-centers to another. It may involve the seller working for the business after the transfer date, normally for the specific purpose. If the business performs over and above the agreed minimums, the seller may have an upside or bonus.

This sounds like a clause to benefit sellers, but there is a benefit to buyers in that it may allow then to pay a lower price for the business at the outset and, if the business does not perform as well as the seller promises, it could lower your total purchase price.

10. Holdback for representations and warranties: This is a cash payment deferred from the cash at closing but paid at a later date. For the buyer it is in effect an insurance, and is paid, or released to the seller at a date beyond the closing date, anywhere from ninety days to two years, however, one year is the norm. The amount can range from as low as 5 percent to as high as 20 percent of the total purchase price. It could, but for some reason usually doesn’t have an interest component. An example off a representation claim is where the seller failed to tell the buyer that of data center rent increase notice prior to close. This would cause a breach of representations and warranties and would reduce that payment.

The one issue regarding representations and warranties hold back is when, and if, funded. For the seller, an unfunded R/M payment at closing is akin to an interest-free loan. The seller would prefer it funded to an interest bearing escrow account.

11. Employment Agreement: The buyer can enter into an employment agreement with the seller. Until the buyer came along the owner never pulled $50K a month out of the business. This can provide the seller with an excellent salary and possible company benefits for a set period. The seller will expense this over the term rather that putting this portion of the purchase price on the balance sheet and depreciating such over the long term. The real employment conditions may be hard-lined, as in show up by 8 AM Monday through Friday to very loose, as in “ Do they have FaceTime in Fiji?”

12. Consulting Agreements: Similar to employment agreements financially but do not include company benefits.

13. Non-Compete Agreements: Typically non-compete agreements are limited to three years. They can be geographic and sector specific and should always restrict the seller from poaching customers. The non-compete agreement should always contain a cash component. As with an employment agreement, the buyer can make annual non-compete payments and expense this item.

14. You Can Keep That: Part of the consideration is goodwill, in this case not the subscriber list, but the relationship between the owner and buyer build during the transaction. For example, the seller, as in company, own’s a BMW that the owner would prefer to keep. There can be a lot of deal capital in how it is treated and can move some change around the table. If handled correctly, someone may also save a few thousand dollars in taxes. You may be surprised at how important something like this can be in a transaction. You will know it when you see it. Sorry, I have to go here, but I once purchased a cable TV company throwing in the condition it would include the vintage Predicta TV in the shelf in the back room.

15. Board Seat: The buyer may offer the seller a seat on the board of the acquiring company. This can be a voting or non-voting capacity depending on the ongoing relationship and the overall nature of the transaction. People like to be on boards.

16. Defer Taxes. In a year where taxes on capital gains or income tax may have some significant changes look closely at the closing date. As a buyer, you may work a slightly better deal if you can close on December 31 vs. sometime early next year. Again this provides the seller with the opportunity to move funds into years with lower tax rates.

17. Another goodwill item: baseball tickets or use of a private jet. When I merged 40 cable television companies to start Charter Cable, I quickly understood the value of my Cincinnati Reds tickets or the promise to fly the buyer to the closing in my partner’s jet.

18. Offer to pay the seller’s broker fees: Of course, you will reduce your top line offer to cover that expense, but the seller will feel as if it no longer counts. Again, you have moved an expense from the balance sheet to the operating statement which can have some current tax advantages.

Source: TheWHIR

Regardless of what you want to call it, many industry pundits having been trying to predict when the technology will go “mainstream” and when we’ll see massive adoption. While technology moves faster and faster, it still takes time for new concepts to take a strong foothold, especially in the channel.

People are generally averse to change, so gaining massive adoption is a process.

First you need to change the minds of the service provider, second you need to produce an economic model that makes sense for the service provider and then it’s up to those service providers to sell the new idea to their end clients. That can be a long cycle.

Let me provide an example of the cycle from a personal perspective. As a former leader of an MSP, I remember hearing the term BDR in the context of a product offering for the first time in 2008. At Thrive Networks, we didn’t start to sell a BDR solution until 2009. By the time we really understood what we’re doing it was 2011 and then we became very aggressive selling against tape back-up and insisting our managed clients have a BDR solution because economic model worked and it was the right thing to do for the client.

Today, over 95% of the MSPmentor 501 offers a BDR solution to their clients, making it the #1 product offered by MSPs in the world with Datto taking the most market share in the category.

If you had told me back in 2009 that BDR would eventually beat out RMM (93% penetration in the MSPmentor 501) for that #1 product spot, I wouldn’t have believed you. In fact, I probably would have called you crazy. After all, RMM really invented the MSP recurring revenue model!

Now that we have some perspective on the time it takes a for technology to gain traction in the channel, lets return to the WaaS discussion. The first time many service providers heard of DaaS (now WaaS) it was 2012 and at that point people were confusing it with VDI (which people still do). Many service providers learned more about it from 2012-2013, but most really didn’t start selling it until 2014.

Today, according to the 2015 MSPmentor 501 data, 52% of providers offer DaaS, with another 15% saying it’s a growth area for them in 2016.

As for the market leaders, IndependenceIT® leads the way the with most 501 companies leveraging its Cloud Workspace® Cloud Management Platform, (please note, we did not count their SDDC management or app service management licenses in this analysis) and itopia has the most market share with those 501 companies that leverage a complete end to end WaaS platform. That said, it’s still a wide open space with more competition entering the fray every quarter.

Even though we have more data on the market then we did even last year, many questions still remain. Will WaaS eventually see the type of adoption BDR has enjoyed over the last few years? And if it does, who will emerge has the market leaders? Will we ever see a WaaS provider with a billion dollar valuation like Datto? What we do know is that the emerging technology now has a more appropriate name and continues to make progress with many service providers and their SMB clients.

Who knows maybe in 2020 WaaS will be the #1 channel product for service providers on the MSPmentor 501.

If you’re interested in learning more about WaaS and how it’s becoming a part of the service provider ecosystem, you should check out HostingCon July 24-27th. I will be there talking about creating a successful cloud strategy, which for some businesses could include WaaS.

Source: TheWHIR