Kevin Fong, the former chairman of data storage company 3PAR Inc., likes to talk about poker, often uses poker analogies and says he studies the card game. He even has a home in Las Vegas. But you won’t find him spending time in casinos, playing Texas Hold ‘em and flipping chips. He says he doesn’t play much. And that is apparently no bluff.
At an event earlier this week at TiE Silicon Valley, a networking group for entrepreneurs, Fong talked about the 3PAR bidding war that lasted over two months in the summer and pitted Hewlett-Packard against Dell. Of course, you all know the fable’s ending: HP bought 3PAR for $2.35 billion, resulting in a $72 million breakup fee for Dell.
“When you’re in the middle of an M&A negotiation, it’s a lot like a game of poker,” Fong told me in a separate interview. “You’re trying to maximize your own benefit while reading the other players and their strategies, and they’re doing the same, and you’re trying to figure out who’s bluffing, and it’s up to you to figure out how to play your hand. Throughout, you’re looking out for your best interests. And for the record, 3PAR never bluffed with Dell or HP. They both had their limits and HP revealed afterwards that the bidding never reached their limit. That’s how a poker player’s reputation is built. Same with an M&A player. And HP is a great poker player.”
The acquisition resulted in big returns for Mayfield Fund (where Fong was an investor for 20 years), Menlo Ventures and Worldview Technology Group, the three venture investors that together maintained a near 40% ownership in publicly traded 3PAR at the time of the sale. At $33 a share, the firms raked in nearly $800 million in the company’s acquisition.
Not bad for a company that, as Fong put it, “was started by five guys, two VCs and a PowerPoint presentation at Flea Street Café” in 1999.
Fong talked for nearly two hours at the TiE event this week about the 3PAR deal, answering audience questions and using a slide show presentation that he said he also showed in a similar talk to the Kauffman Fellows. He says that the slideshow reveals nothing that isn’t already publicly disclosed.
After TiE, I followed up with Fong and met him the next day at the Palo Alto, Calif.-based office of GSR Ventures, the China-focused early stage firm where Fong serves as special advisor.
Here’s some of what he had to say about the 3PAR acquisition. The discussion is edited for clarity.
Q: How much did 3PAR raise?
A: The first round was for $5 million in 1999, with Mayfield and Worldview. Total venture funding was $183 million, which included a $100 million B round from strategic players Cisco, Oracle, Sun and Veritas in 2001.
Q: Was the 3PAR investment your big home run?
A: From an ROI perspective, it was certainly a great investment. But also from a David and Goliath-like perspective. It was great and lots of fun to launch the company as a little startup the way we did in 1999.
Q: Will there ever be another story like how a startup similar to 3PAR grew and was acquired for $2.35 billion?
A: There was some luck involved. We survived two major downturns over the past 11 years, which is a good thing since it wiped out some of our competition. But we raised the $100 million strategic round in 2001 before the economy went sour, and we went public in 2007 before the IPO window closed. There was some fortunate timing involved.
Q: Can startups be built like this anymore?
A: The good news is that although there are large consolidated companies out there, there are often gaps in the services they provide and startups can fill those gaps.
Take cloud computing, for instance, and you’ll see VMware and Citrix and others buying companies and growing because more and more you hear how customers want the full suite — they want more from one company. But there are a number of cloud-related startups offering usable architecture and products and services. There are opportunities today for cloud startups, so I suppose the example of 3PAR is absolutely good for other startups.
Q: When 3PAR made its acquisition offer for 3PAR on Aug. 15 for $18 a share, you set a date with Michael Dell to meet him in Austin on Sept. Sept. 8. After 3PAR agreed to HP’s $33 a share deal on Sept. 2, you kept that meeting date and went to see Dell. Why?
A: The negotiations weren’t anything personal. When Dell first made the acquisition offer, he met with 3PAR and talked about how Dell is still a founder-run company, which is something to be admired. I consider Dell a nice guy and so are all the Dell people.
Frankly, he’s not going to lose any sleep over not having a $2.4 billion acquisition. Also, Dell received a $72 million breakup fee following HP’s acquisition, which the company can just use to buy their next startup.
Q: Actually, Dell recently bought Boomi, so that is probably close to the truth, isn’t it?
Q: What did Dell say to you when you met him in Austin after the deal with HP was done?
A: He said: ‘Welcome to Texas.’