The Great Coding School Rollup of 2015
I just saw my first proposal for a Coding School Rollup. As you are probably aware, 2014 saw the explosion of coding schools all over the US. These are typically four to 12 week programs. Some are full-time, others are part-time. Many are immersive and include internships. A few are longer than 12 weeks.
I know several people who have gone through the with great success and gone on to have excellent software development jobs. It’s a powerful model that university education has generally missed on. In fact, I know a few companies that put computer science grads through these types of programs as an on boarding process. I’m a big fan of coding schools.
When I saw the proposal, I immediately thought of the web consulting rollups of 1999. Do you remember US Web, iXL, Scient, and Viant? Companies were being bought (and valued) at 10x forward revenue only to be valued at between 0.5x and 1.0x revenue several years later. I’d argue the 0.5x and 1.0x revenue were the correct valuations since these are generally 5% to 10% net income businesses that are 30% – 40% gross margin and heavily dependent on (a) transitory labor and (b) favorable supply/demand conditions.
But let’s go back a little further in time. Anyone remember the web hosting rollup? Or the ASP rollup? I was in the middle of that with Interliant (I was a co-founder) – we bought 20+ companies, at one point has an almost $3 billion market cap (on $200 million of revenue – recognize the multiple), but went bankrupt in 2002. A few companies got bought before the whole Internet-bubble thing fell apart, and we almost managed to get bought (for around $500 million, but that’s another story for another day.)
Or the ISP rollup before that? Yeah – Verio was the big winner there (and they overlapped with the web hosting rollup since they evolved into that) and their timing was epic being bought by NTT for $5 billion in cash just before everything blew up. I will forever be in awe of the exit execution and timing there by the board and investors (some of whom are friends.)
Or the systems integration rollup of the 1990s. I was involved in that also. My first company, Feld Technologies, was bought by AmeriData, which bought 40 companies in three years. We were bought for a more reasonable 1x revenue (and about 4x pre-tax income) when the value of the AmeriData stock, options, and cash we took out were factored in. GE Capital bought AmeriData for $500 million two years after Feld Technologies was acquired, so that was a great exit, but there were plenty of other system integration rollups that ended up in the dust bin.
Office supply consolidation? Anyone remember that one? I wasn’t involved but some of the players ended up in the systems integration rollup game.
My good friend Phil Weiser often says to me “history doesn’t repeat itself, but it does rhyme” which I always thought was a Mark Twain quote but apparently there’s some confusion about that in the world of Wikiquotes.
In this case, Coding School Rollup definitely rhymes with all the rest. And for those clever entrepreneurs and investors who try to use the word “consolidation” instead of “rollup”, don’t bother, we already tried that. Consolidation and rollup rhyme also (well – actually they are synonyms.)