Struggling Startup Virtual Instruments Merges With Storage Vendor Load DynamiX, CEO John Thompson Departs

Virtual Instruments, a startup led by Microsoft Chairman John Thompson that has fallen on hard times in recent months, has agreed to a merger with Load DynamiX, a startup it competes with in the storage performance analytics market. Terms of the deal weren't disclosed.

The combined company, unveiled Tuesday, will be called Virtual Instruments and will be led by Load DynamiX CEO Philippe Vincent. Thompson, who has been CEO of Virtual Instruments since 2010 and was its lone remaining board member before the merger, will not have a role in the combined company or its board of directors, Vincent told CRN in an interview.

Vincent said about 110 remaining employees from the old Virtual Instruments will be coming over in the merger, including Chief Technology Officer John Gentry and Senior Vice President of Services Bo Barker. The combined company will have between 180 and 190 employees, according to Vincent.

The new Virtual Instruments is also getting a venture capital infusion. HighBar Partners, Menlo Park, Calif., is leading a $20 million investment round in the new Virtual Instruments, with Azure Capital Partners, Kinetic Ventures and Benhamou Global Ventures also taking part.

Vincent said some of this funding will be used to hire talent for the new Virtual Instruments. "We're putting this company on a different path," he told CRN.

The new Virtual Instruments does not include any board members from the old one, but a spokeswoman told CRN that will soon change.

"A board member will be added shortly to the new Virtual Instruments board that represents the interests of prior VI shareholders and debt holders, but this individual has not yet been named," said the spokeswoman.

Virtual Instruments sells technology known as infrastructure performance management, which tracks performance of apps running in physical, virtual and cloud environments. As the best-known vendor in a small yet strategically important market, Virtual Instruments attracted dozens of Fortune 500 firms as customers, including banks, insurance companies, hospitals and telecom carriers.

Load DynamiX, formerly known as SwiftTest, sells technology that lets organizations test networked storage workloads in a variety of scenarios.

Vincent said the merger makes sense because Virtual Instruments and Load DynamiX have similar products and share a number of common customers. Both startups were founded in 2008 and have headquarters about a mile apart near San Jose, Calif.

While the future looks promising for the new Virtual Instruments, the same can't be said of the original company, and laid off or furloughed around two-thirds of its staff of 300 employees in October after an unsuccessful search for a buyer.

Seven members of Virtual Instruments' board of directors resigned en masse the same month, leaving Thompson as the lone remaining board member.

Despite the recent turmoil, Vincent said the merger will bring together two complementary sets of monitoring technology and provide a "very clean capital structure" for the new Virtual Instruments. "We will be a profitable company growing at a controllable rate," Vincent told CRN.

Former Virtual Instruments employees have told CRN they believe the company focused too heavily on fibre channel storage and should have expanded into emerging areas like network-attached storage and IP storage.

Vincent told CRN he believes Load DynamiX's background in IP-based storage will help the new Virtual Instruments attract a wider range of customers.

"There is very obviously synergy in accessing the Virtual Instruments customer base for Load DynamiX products," said Vincent. "VI has hundreds of customers that are the very types we want to serve, and that will create growth that we wouldn't have otherwise."

The new Virtual Instruments may be getting a fresh start, but several investors in the old one told CRN they're not pleased with the terms of the merger.

Virtual Instruments has received just over $76 million in funding in six rounds, but the vast majority of investors won't be getting anything from the merger deal.

"This is going to be a doughnut for most people. It's a terrible deal," one disgruntled Virtual Instruments shareholder told CRN.

Both Vincent and a representative from the old Virtual Instruments declined to comment on the financial terms of the merger with Load DynamiX.

"The company is not at liberty to disclose any communications or information of this type with respect to its private investors," a Virtual Instruments spokeswoman told CRN.