Ivan Vachovsky

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

A. Selling Companies is different thanselling a car. There is the economic cycle, which repeats on average5 to 7 years. Selling opportunities emerge in the upturn of theeconomic cycle. If we would miss this cycle than we would have towait for the next one. Waiting 5 to 7 years in the high tech businessis a lot. There is muchrisk involved,especially with most of mynet worth vested with Aplus.Net. At the age of 55 and father of 4 Idecided to play it safe this time for the first time in my life andto reduce the risk exposure.

Q. Who are the buyers?

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

Q. Is Catalyst interested in moreacquisitions in the web hosting space?

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

Q. How much you sold Aplus.Netfor?

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

Q. Did Aplus.Net employees benefit fromthe sale?

A. Yes. Our key employees had optionstotaling to about 12% of the outstanding shares of the Company.Typically the rule of thumb in the venture capital world is 10% getsallocated for employee options and about 5% of those go to theofficers and the remaining 5% go to other key employees. Our keyemployees got much more than 5% provided that the owners/officers didnot have options and all 12% went to key employees. Long term loyalemployees who had their option priced low benefited most. It pays tobe loyal to your employer. We’ve had employees who have been withus for over 10 years.

Q. What would be the impact onAplus.Net customers?

A. The buyer has secured experiencedmanagement team and I hope that the service willnot deteriorate. Iam doing my best as a board member, however I do have much lesscontrol now. Also as far as I know no key employees have left theCompany, so that the customers are being served by the same staff inthe same data centers. As far as the same Swedish engineers andworkers are building the Volvos in the same plants, I am notthatconcerned that Volvo was acquired by Ford if I may use thisfigurative example.

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

A. Sure. Before we sold we were tryingto buy some competitors and we actually completed one successfulacquisition of Cedant. We have been on both sides of the fence. Ihave seen many mistakes made by owners. Here are some tips. 1. Hire aprofessional investment banker . You will be leaving money on thetable if you do it by yourself. 2. Communicate well. Do not assumethat people would know what you know. Prepare a good offeringmemorandum with emphasize on the financials. 3. Have auditedfinancials. 4. Be honest. Sure way to kill a deal is to twist thefacts and get caught, which will happen. 5. Be reasonable, flexibleand open minded. Do not approach the deal with pre-set goals andmultiples. 6. Understand your buyers and their motivation. Try yourbest to deliver on their expectations. 7. Lock your ego and emotionsin the closet. Those two are the reasons for 90% of the failed deals.8. Do not neglect your regular course of business. Operate like thedeal would not happen.9. Keep the negotiations confidential.

Q. What are you going to do now?

A. I will take a breath and put someorder in my personal life. For 14 years in business I was putting 60hours 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 atemporary situation and I do anticipate to get actively involved inbusiness and social life soon. If you need a strong CEO, advisor,board member or investment for your new venture, send me a note. Ihave put together my web site www.ivanv.comalready. 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 notthat popular now. I have the bad feeling that there are more writersthan readers nowadays. It is certainly true for the poetry. No, I amnot going to write poetry. Google announced lately that the averagenumber of readers for the blogs is 1 (one). I gave up on the idea towrite my own blog. Hey, my single blog reader give me a call, letschat it will be easier for both of us.

Q. How it feels to be a rich personnow?

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

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

A. There is nothing wrong with theIndustry. It is healthy and it satisfies specific needs in themarketplace, which needs are here to stay. I am very optimistic aboutthe web hosting Industry. Of course the Industry will change andre-shape as technologies evolve. Those companies, which are quick andadaptive will survive and thrive. Another trend in the Industry isthat it gets more mature and requires more professionalism. The timeof the geeks-businessmen is over. I remember the early days of theInternet when the slogan was “my hosting provider sucks less thanyours”. It was geek driven industry and very few knew how to managea professional service organization. Those days are over now andcustomers do not tolerate “sucks” anymore. Terms like “customerrelation management” “customer satisfaction” “churn control”“customer feedback” etc. must be part of the daily lingo in amodern web hosting company. Owners have to look honestly atthemselves and decide whether they can be the CEO of a servicecompany and they must hire a real CEO if the answer is no. Mistakeswill not be tolerated by the marketplace.

One ongoing concern is the entrance oflarge companies such as Yahoo, Microsoft (and potentially Google) inthe business. This is a valid concern, however it is oftenexaggerated in my opinion. Customers still need a lot of handholding, which those big Companies can not provide. Two years ago Iwrote that Yahoo is spread too thin over too many industries. I waspleased to note that now two years later Yahoo management came to thesame conclusion and even gave it a name “the peanut butter effect”.They fired some executives too. Bottom line is that the largecompanies rather validate the web hosting industry today thandominate it. I would venture to say that it will be like that fornow and in the near future.