JAMF Software of Minneapolis just closed on $30 million of venture financing, and what’s interesting is that both the big Silicon Valley venture firm that led the investment round and the company agree that JAMF didn’t really need the money.
“They most definitely did not need the money,” said Greg Goldfarb, a managing director of JAMF’s biggest new financial partner, the growth equity investment firm Summit Partners.
That’s a lot of capital for a company without capital needs, but JAMF isn’t the first young technology company in our region that’s grown into a sizable company almost entirely by bootstrapping and then went ahead and raised a big venture capital round anyway.
For an investor like Summit, a top-shelf firm that’s invested in more than 380 companies, it had a good case for proceeding, too. JAMF is a company that happens to fit extremely well with a couple of Summit’s favorite investment themes.
“Themes” are what some private capital investors call trends and industry shifts, and figuring out which ones will be moneymakers helps them sort investment ideas. Summit found JAMF because it seemed so well-positioned to benefit from more Apple iMac and MacBook computers getting bought by big companies and the continued growth of mobile devices like iPhones.
JAMF from the very beginning was an Apple-only software developer, but the beginning was well before Apple turned into the colossus it is today. JAMF got its start in 2002 when founder Zach Halmstad was working in desktop support at the University of Wisconsin-Eau Claire.
He was frustrated by the lack of tools technology administrators need for tasks like managing passwords and security, pushing out software patches, even keeping track of computers.
Business organizations that only used Microsoft Windows machines had a full toolbox of management software for administrators, but education was Apple territory. Halmstad decided to start developing that software to manage iMacs.
The company still has a bigger employee group in Eau Claire than Minneapolis. Halmstad’s partner Chip Pearson, the managing partner of JAMF, first became involved after being shown a demonstration of JAMF’s version 1.0. Pearson finally joined JAMF full-time in the summer of 2006.
Minneapolis became the headquarters because they suspected that an Eau Claire address wouldn’t help reassure potential customers that JAMF was a significant global technology company.
Then in 2007 Apple introduced the iPhone.
The iPhone wasn’t a part of the original plan, of course. On the other hand, when the well-known Piper Jaffray & Co. securities analyst Gene Munster first learned about JAMF from a venture capital firm several years ago, he recognized right away the size of JAMF’s potential opportunity.
Riding the Apple rocket
By then Apple’s mobile products were on fire, and businesspeople increasingly wanted to use their iPhones and iPads at work. Munster estimates that there are 430 million so-called iOS devices in use now, vs. about 195 million at the end of 2011. And about half of those Apple devices are used in some capacity at work.
With the denizens of the C-suite all carrying their iPads to meetings, the information technology managers at big companies were suddenly much warmer to the idea of having Apple iMac and MacBook machines on their employees’ desks. With the increasing availability of cloud-based storage of data and applications, these companies could also roll out Macs without the big investment of network infrastructure that used to be required. But they still needed tools to manage the fleet.
“Is JAMF going to be a big company?” Munster said. “It’s going to be a bigger company, as more businesses shift to using Macs in the enterprise.”
JAMF revenue took off, and while Pearson declines to discuss financial information, a guess for 2013 revenue is maybe $45 million. As the company grew, Pearson said “we just didn’t let growth take over,” and he credits his board’s chairman, the consultant Jim Hansen, with teaching the principle of balanced scorecard.
That’s the business concept that elevates nonfinancial measures alongside financial targets like growth in revenue and operating income, to keep the business more “balanced.” Growth is important to JAMF, of course, but so is customer and employee retention. Even as revenue surged, the operating margin ranged between 15 percent and 30 percent.
As JAMF continued to grow, up to about 275 people currently from 180 in October 2012, Pearson said, the company continued to consider whether it made sense to raise capital. About three years ago it had raised less than $3 million. But because the company was cash-flow positive, that money had just stayed on the balance sheet.
“When we looked at how fast Apple was growing, and we wanted to maintain our leadership position in the Apple platform, and maybe grow market share, we didn’t think we needed to do anything crazy,” he said. “Except hire more people and scale the business up.” They are working on that: an Internet job board this week lists 42 open positions.
It wasn’t really a question about having any more money to spend but about how having more money would change their view of risk and opportunity. Summit Partners’ Goldfarb put it this way: “Just having a really deep, strong balance sheet gives the team that confidence to move swiftly and decisively.”
Pearson said the leadership team has no intention of allowing the newly raised capital to change the culture of the company or cause them to abandon the balanced approach to building the business.
“As we build our financial model for 2014,” Pearson said, “we may depress the [cash flow] margin a bit. But we always build models that are cash-flow positive. It’s just in our DNA.”