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From Silicon Valley: Expat CEO puts Philly's small tech scene in context

'We just don't have enough deal flow': Paul Melchiorre

    by Joseph N. DiStefano
    Published 

Paul Melchiorre, the SAP veteran turned tech start-up CEO (iPipeline of Exton, and now business-planning software maker Anaplan of San Francisco), sat down over eggs and coffee at 1818 Marathon this morning to put his industry and Philly tech in perspective:

How's business? Everyone (business software start-ups and suppliers) is up against IBM, SAP, Oracle, Microsoft. For 20 years all the big corporations are either getting legacy IBM updates, or they've gone to SAP or Oracle and bought those big systems and those expensive upgrades.

And guess what? It doesn't work. SAP, Oracle, IBM, they acquire these firms and put (little or no) investment in the technology. They milk the ongoing support. SAP is still working on Hana. Oracle bought all those applications, and now they're getting old... 

So global companies (Big Software's clients) are struggling with "shadow IT" and "spreadsheet hell." They fall back on spreadsheets or custom code to do the business planning functions. Data security is an issue. Spreadsheets on a hard drive, that makes its way to a flash drive, is not secure. This is happening in the world's largest banks and financial institutions.

Qlik in Radnor, one of yesterday's hot business-analytics companies and a suburban Philadelphia success story, was sold yesterday at a disappointing price. What do recent deals like that tell us about the future of business software startups?
I would say what we are seeing now, with the recent acquisitions this week of Marketto by Visata and of Qlik by Thoma Bravo -- they also bought my previous company, iPipeline -- it shows that, with no companies going public and the public companies at bargain pricing compared to January, you can plan on seeing more public and private companies being bought up by private-equity firms.
Consolidation and contraction will continue where the total area [potential] market is small or companies are only providing point solutions. In Qlik's case, Tableau was [beating] Qlik. They, along with all tech firms. took a haircut in February [when software shares fell].
Is there hope for Philadelphia as a tech center? It's great that Mayor Kenney is focused on education and bringing back the soda tax. However, as much as I love Philly -- and I will be back, it's an amazing place to raise a family -- (we are still Not) a top technology destination.
We have all the ingredients -- an amazing young, talented and affordable workforce that want to live in one of the best cities in America.
So why is I-76 bumper to bumper headed to the suburbs? That is where (those technology companies that do locate in the Philadelphia region mostly) go, for many reasons that the Mayor may want to focus on. Maybe it’s the business 'privilege' tax. I don't know...

Is there enough capital to sustain start-up tech firms here? We have plenty of money here. But ask NewSpring, MissionOG, Josh Kopelman's FirstRound Capital, LLR, why they put their money in New York, Atlanta, Boston.

Josh Kopelman (FirstRound founder, and the new chairman of the board that controls the Inquirer and philly.com) has a lot of smart people he works with in Silicon Valley and in Israel. His group has money.

But we just don't have enough deal flow in Philly to keep that money close to home.

And that's why you're out in California now. For me it's an opportunity to take another run at something big, with Anaplan.

I had to leave the city I love, because there is just not the scale (of software investment) you have in San Francisco or Boston, or Austin, or New York City, or Atlanta, or even Utah.

I'll be back.

    JN
    Joseph N. DiStefano