HostReview.com Web Hosting Interviews

An Interview with
Ivan Vachovsky, Founder Aplus.Net

December 11, 2006

Q. Why did you decide to sell Aplus.Net?

A. Selling Companies is different than selling a car. There is the economic cycle, which repeats on average 5 to 7 years. Selling opportunities emerge in the upturn of the economic cycle. If we would miss this cycle than we would have to wait for the next one. Waiting 5 to 7 years in the high tech business is a lot. There is much risk involved, especially with most of my net worth vested with Aplus.Net. At the age of 55 and father of 4 I decided to play it safe this time for the first time in my life and to reduce the risk exposure.

Q. Who are the buyers?

A. Catalyst is a private equity fund out of New York. They specialize in media and service companies, so that Aplus.Net is a perfect fit for them.

Q. Is Catalyst interested in more acquisitions in the web hosting space?

A. This is a question for Catalyst of course. As far as I know the answer is yes, however I do not know details about their objectives and time table.

Q. How much you sold Aplus.Net for?

A. Buyer and Seller agreed not to disclose the terms of the sale. It was a complex transaction and we have retained minority stake. In addition to that Aplus.Net is a better company than your average web host. Aplus.Net has a lot of vision, a lot of technologies and intellectual property too. Aplus.Net experiences very strong growth momentum. We would set wrong expectations for many if we just mention some transaction value and multiples.

Q. Did Aplus.Net employees benefit from the sale?

A. Yes. Our key employees had options totaling to about 12% of the outstanding shares of the Company. Typically the rule of thumb in the venture capital world is 10% gets allocated for employee options and about 5% of those go to the officers and the remaining 5% go to other key employees. Our key employees got much more than 5% provided that the owners/officers did not have options and all 12% went to key employees. Long term loyal employees who had their option priced low benefited most. It pays to be loyal to your employer. We’ve had employees who have been with us for over 10 years.

Q. What would be the impact on Aplus.Net customers?

A. The buyer has secured experienced management team and I hope that the service will not deteriorate. I am doing my best as a board member, however I do have much less control now. Also as far as I know no key employees have left the Company, so that the customers are being served by the same staff in the same data centers. As far as the same Swedish engineers and workers are building the Volvos in the same plants, I am not that concerned that Volvo was acquired by Ford if I may use this figurative example.

Q. Can you share a word of advise for other hosting companies owners when, how and for how much to sell?

A. Sure. Before we sold we were trying to buy some competitors and we actually completed one successful acquisition of Cedant. We have been on both sides of the fence. I have seen many mistakes made by owners. Here are some tips. 1. Hire a professional investment banker . You will be leaving money on the table if you do it by yourself. 2. Communicate well. Do not assume that people would know what you know. Prepare a good offering memorandum with emphasize on the financials. 3. Have audited financials. 4. Be honest. Sure way to kill a deal is to twist the facts and get caught, which will happen. 5. Be reasonable, flexible and open minded. Do not approach the deal with pre-set goals and multiples. 6. Understand your buyers and their motivation. Try your best to deliver on their expectations. 7. Lock your ego and emotions in the closet. Those two are the reasons for 90% of the failed deals. 8. Do not neglect your regular course of business. Operate like the deal would not happen. 9. Keep the negotiations confidential.

Q. What are you going to do now?

A. I will take a breath and put some order in my personal life. For 14 years in business I was putting 60 hours 6-7 days weeks with no vacation in the first 10 years. Family, health, house vie for my attention. However, I look at this as a temporary situation and I do anticipate to get actively involved in business and social life soon. If you need a strong CEO, advisor, board member or investment for your new venture, send me a note. I have put together my web site www.ivanv.com already. My dad is 87 years old and he is writing his third book now. As it goes in the family it is way too early for me to retire.

Q. Are you planning on writing a book?

A. Yes. Unfortunately reading is not that popular now. I have the bad feeling that there are more writers than readers nowadays. It is certainly true for the poetry. No, I am not going to write poetry. Google announced lately that the average number of readers for the blogs is 1 (one). I gave up on the idea to write my own blog. Hey, my single blog reader give me a call, lets chat it will be easier for both of us.

Q. How it feels to be a rich person now?

A. You know those herbal tea bags. They are good for 2 cups of tea not just one. I would reuse the bag to make 2 cups from one bag in the past. Now I just use them once.

Q. Where do you see the web hosting industry going now? Did you sell because you did not feel that the Industry has great future?

A. There is nothing wrong with the Industry. It is healthy and it satisfies specific needs in the marketplace, which needs are here to stay. I am very optimistic about the web hosting Industry. Of course the Industry will change and re-shape as technologies evolve. Those companies, which are quick and adaptive will survive and thrive. Another trend in the Industry is that it gets more mature and requires more professionalism. The time of the geeks-businessmen is over. I remember the early days of the Internet when the slogan was “my hosting provider sucks less than yours”. It was geek driven industry and very few knew how to manage a professional service organization. Those days are over now and customers do not tolerate “sucks” anymore. Terms like “customer relation management” “customer satisfaction” “churn control” “customer feedback” etc. must be part of the daily lingo in a modern web hosting company. Owners have to look honestly at themselves and decide whether they can be the CEO of a service company and they must hire a real CEO if the answer is no. Mistakes will not be tolerated by the marketplace.

One ongoing concern is the entrance of large companies such as Yahoo, Microsoft (and potentially Google) in the business. This is a valid concern, however it is often exaggerated in my opinion. Customers still need a lot of hand holding, which those big Companies can not provide. Two years ago I wrote that Yahoo is spread too thin over too many industries. I was pleased to note that now two years later Yahoo management came to the same conclusion and even gave it a name “the peanut butter effect”. They fired some executives too. Bottom line is that the large companies rather validate the web hosting industry today than dominate it. I would venture to say that it will be like that for now and in the near future.

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