I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I started following stocks in 1981 when I was in grad school at MIT and started analyzing tech stocks as a guest on CNBC in 1998. I became a Forbes contributor in April 2011. My 12th book is "Disciplined Growth Strategies: Insights from the Growth Trajectories of Successful and Unsuccessful Companies" (http://www.apress.com/us/book/9781484224472). I also teach business strategy and entrepreneurship at Babson College in Wellesley, Mass. (http://www.babson.edu/Academics/faculty/profiles/Pages/Cohan-Peter.aspx)
The author is a Forbes contributor. The opinions expressed are those of the writer.
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Warmenhoven is excited about the chance to mentor Aron, who has never been a CEO. As Warmenhoven explained, "Mohit is a world-renowned engineer -- he developed Google's file system. He is brilliant and was asking for advice on how to be successful as a CEO. He has a great personality, is anxious to learn and has a good heart -- he wants to help his people develop and create products that improve his customers' operations. He will be a great CEO."
Cohesity's $90 million capital-raise suggests that blue-chip investors relish the opportunity to invest in Aron and his vision. These include GV (formerly Google Ventures) and Sequoia Capital; Cisco Investments and Hewlett Packard Enterprise; Accel, ARTIS Ventures, Battery Ventures, DHVC (formerly Danhua Capital), Foundation Capital, Qualcomm Ventures, Trinity Ventures and Wing Venture Capital.
Cohesity, which has been growing at "triple digits for the last three or four quarters," plans to use the money to expand its product line and its geographic footprint. As Aron said, "The purpose of the $90 million is to scale sales and marketing in the U.S. and EMEA and to spend on R&D to add data protection and analytics to our product."
Warmenhoven thinks that Cohesity has a better business model than Nutanix, which generated $349 million in revenue in the last six months while losing $255 million, yielding a $697.2 million accumulated deficit according to Nutanix's latest 10Q.
As Warmenhoven explained, "Cohesity's revenue per sales rep per year is about $4 million whereas for Nutanix, the comparable figure is $2.5 million. The difference is that Cohesity has a high-volume product that targets the 70% of enterprise storage budgets that go to the core data centers. By contrast, Nutanix delivers specialized solutions to regional data centers, rather than the core."
Aron, who at its IPO owned 10.7 million shares of its common stock which represented 8.7% of its Class B shares, thinks that Nutanix -- whose stock has fallen 59% from its $44.46 a share high -- can become profitable by cutting back on the growth rate of its sales and marketing staff. He defended Nutanix's strategy by pointing out that when it got started investors were urging startups to treat sales and marketing as investments that would pay off by scaling more rapidly to the $100 million threshold needed to go public.
As I wrote, in the fall of 2015 there was a major sea change in Silicon Valley. Many money-losing enterprise technology companies were abruptly told that they would not be getting any more capital until they achieved cash-flow breakeven. Sadly the CEOs of these startups were better geared to fast growth than fast and profitable growth.
But Warmenhoven, who proudly told me that NetApp began to operate profitably when it hit $15 million in revenue, thinks that Nutanix's strategy is unsustainable since its sales and marketing expense ($323 million) is greater than its gross profit ($274 million).
Skip Nutanix shares and keep your eye on Cohesity.