Datto CEO Tim Weller On IPO: ‘MSPs Are What Got Us Here’

‘We’re also undergoing our own digital transformation and constantly trying to improve how we do things for partners and make their life easier,” Datto CEO Tim Weller told CRN after the company went public.

Powering To The MSP Future: Datto

Datto held its successful IPO last week, entering the New York Stock Exchange at $27 a share, the high end of its expected range. The Norwalk, Conn.-based company chose “MSP” for its ticker symbol, a nod to the company’s customers: managed service providers.

Datto CEO Tim Weller, in an interview with CRN on the day of the IPO, said its stock market debut gives Datto new resources to help it continue to build the products and services that MSPs need to help customers with their digital transformation across storage, networking, security and other key areas of their business.
The use of “MSP” as its ticker symbol was meant to be a recognition that MSPs are what made Datto successful, Weller said.

“We are creators of technology, but we‘ve never had any intention or any practices selling that directly to small and medium businesses,” he said. “We focus on the technology, and we focus on helping partners grow and helping partners sell our technology. But really, we’re investing in their business.

The IPO comes 13 years after the company was founded by Austin McChord in his parents’ basement. McChord, who previously served as Datto’s CEO, is still on the company’s board.

The IPO, however, was not without a hiccup. A multiyear tax fraud investigation that involved Robert Smith, the founder and CEO of Vista Equity Partners, which owns 72 percent of Datto following the public offering, came to light the week prior. The investigation led to Smith admitting to “serious crimes” in exchange for avoiding prosecution.

Here’s how Weller plans to quickly move past any questions about control of the company’s future and what he said that future will bring to its MSP partners.

What is the impact of Datto using the acronym ‘MSP’ as a ticker symbol?

It’s meant to be a recognition that MSPs are what got us here. We are creators of technology, but we’ve never had any intention or any practices selling that directly to small and medium businesses. We focus on the technology, and we focus on helping partners grow and helping partners sell our technology. But really, we’re investing in their business.

As the industry has grown, then Datto has grown. If the industry‘s not growing, then you know that’s challenging for us. So we just kind of went all in, and we wanted this to symbolize that. And in no way does it mean we’re an MSP. Of course we’re not. We’re a technology provider to MSPs. So it’s just a signal of patient, long-term alignment with this industry. And we think it’s very early. We’re so excited about the next five years.

There have been comments around the industry, including from MSPs, that using ‘MSP’ as Datto’s ticker symbol could take away from the value of being an MSP. Could that happen?

Oh, I saw a couple of those comments online, too. But we’ve had overwhelming outpouring of support from MSPs on this. They know Datto, and they know the spirit in which it was meant. Again, we never sell direct. So we have no intention of anything other than aligning incentives, aligning our practice, aligning support and technology creation, all for the benefit of MSPs. So, it’s definitely meant to be a shout-out to the industry, nothing more. And don’t read anything else that people might say into it.

Will the IPO make it easier for Datto to recruit MSPs?

You know, I don’t know that that’s the case. I suppose the one thing I would say is, probably only a quarter of our partners are international, and so it’s possible that helps the brand a little bit on a global scale. But we’ve done very well. In fact, this has been an excellent recruiting year for new MSP partners. So I don’t think it was our primary intention, but it certainly signals some more permanence, and you get a broader capital base, and you know, if that makes it seem like a safer partner for them, then that would be a positive.

Back in 1999 you were Akamai’s chief financial officer when it set the record for the fourth-biggest single-day gain for an IPO. What’s different in today’s market and environment that will help Datto do well going forward?

You know, Akamai was an outlier. It was the peak, absolute peak, of the internet bubble. And I think investors were trying to make thematic bets on the internet, not knowing what it was going to look like. Think about how small Amazon and Google and other companies were back in that day. It was really a different era. I think now you’ve got something going on, which is very cool, which is a broad recognition that Software as a Service, in fact all technology as a service, is where the world has moved to. Those were very nascent concepts in 1999 and 2000. And you know, first Salesforce.com, then many, many others, pioneered this road. Datto has been Software as a Service forever. MSPs, even the word ‘managed services’ means they’ll get recurring revenue and be advisers and strategists and operators and procurers of technology for their end clients, SMBs. I think these markets recognize that it’s not necessarily a healthy thing to have these big IPO pops. ... And, if the stock goes up too much, then people question you in the other direction and say, ‘Is capital too cheap?’ We’re a long-term-view company. It’s a long race. We’re thrilled to be public. We’re thrilled to trade well today. And then we’ll start moving away from watching the stock minute by minute.

But I will admit to being a little hooked for that first hour. You can’t be at the New York Stock Exchange and not feel the palpable energy.

Now that the IPO is done, what are some of key initiatives we can expect to see from Datto for the rest of 2020 and into 2021?

It’s always going to revolve around technology. And first and foremost, technology that MSPs can sell. We will see the same trends the industry’s been experiencing suddenly probably accelerate post-COVID. So things like the shift to cloud, remote work, and remote management of digital assets as SMBs shift to more digital transformation. I said back in March and April that we as an industry should be prepared to capture more of that. And that means more digital assets. You need to secure, protect, maintain access to, monitor and view those digital assets, both applications and data. You have to manage those live environments and protect them. And MSPs are on the front line of that as essential workers. And so you’ll see us investing heavily in technology.

We’re also undergoing our own digital transformation and constantly trying to improve how we do things for partners and make their life easier. MSP time is probably one of the better metrics that that we love to look at: Can we do this faster and have MSPs spend less time? It can be the smallest of things. [We’re] trying to improve that partner experience continuously.

I would say it’s technology for them to sell to SMBs and improving their partner experience that are probably first and foremost on our investment list.

Looking at Datto’s form S-1, at one point the company warns investors that its primary owner, Vista, will control Datto. And then it goes on to list all the ways private equity has a say over Datto. Should MSPs believe everything that they see in that S-1 in terms of what it warns about Vista?

I’ll let you research elsewhere how risk factors work in the S-1, but it’s meant to be public disclosure. What I would tell you is we’ve had an excellent relationship with Vista. It’s been a great strategic partnership for the last three years. And so nothing has changed at all at Datto other than we’re now bringing on some new investors [along with] new additional investors from the public markets: large mutual funds and pension funds and investors like that. So, nothing has changed there whatsoever. You know, I’m CEO of the business. We’ve got an executive management team. [McChord] is on our board. In fact, he was with us today to celebrate at the NYSE.

I wouldn’t as an MSP look for any change at all other than we now have a much stronger balance sheet and are very committed to accelerating our investment in technology and support for MSPs. And we told all the investors on our road show over the last week that very thing, that they should expect profit margins to probably decline next year based on investment into this industry. We’re not bottom-line-driven as much as we are driven to grow with MSPs.

The CEO of Datto’s private equity owner, Vista’s Robert Smith (pictured), has admitted to multiple crimes as part of a federal tax fraud case. Smith is under a five-year deal with prosecutors that compels him to cooperate with the investigation of the largest tax fraud case in history by an individual. Given that, are you comfortable with Smith as the CEO of the company the SEC Form S-1 says controls Datto?

As I said, we’ve had a great three-year relationship with Vista. Robert’s not on our board. They have many partners. And now we’ve brought on public investors. So Datto won’t change. Datto hasn’t changed. And the operating management team of the business is the same. I would direct you over to them for further details on that. I’m not privy to anything like that and wouldn’t be commenting in any case.

I think for Datto, again, we’ve got a board of directors. Austin McChord is on the board. We’ve got two new board members in Q3 that you can look up in the S-1 that are independent board members. And of course, now we have a meaningful public investor base. All the things you need to know about Datto are disclosed in an S-1, and we’ll continue to do public filings now. So, if anything, I think MSPs can be even more confident that they understand exactly what‘s happening at Datto going forward. And we’re still in the same battle. I think people would probably fairly judge.

Will the IPO impact Datto’s competitive environment?

I don’t think so. It makes us stronger financially. We’ve been asked a number of times [if] that make us want to acquire more companies. We respond to that by saying we’re opportunistic, and it’s certainly a little bit easier to do so. But our primary motion has been internal growth. And we continue to have very good internal growth even in a difficult year like this.

I think overall, the strategic playbook, operationally, culturally, we’re the same company, so I don’t think it’s going to shift the competitive landscape. It’s probably a fair question for competitors. And we would expect other people who served this industry in whole or in part to think about if their evolution involves the public market. So it’s going to be an interesting 2021.

Datto started in the storage market and moved into networking. Are there any plans for Datto to move into other adjacent fields of technology that it could bring to MSPs?

We would look at the overall strategic lens of, if SMBs are moving their assets to digital, meaning truly the file cabinet goes away, maybe the bricks and mortar are going away for some industries. Now the lifeblood of your company is your interaction online with your customers, increasingly mobile, and all of your digital data and your applications become the core of your business. In that environment, if that is starting to shift into the hybrid cloud world or remote work world, your digital assets are spread all over the place. And it explains everything Datto does: continuity, remote management, networking, all the different threads of security we put across all of our different products. And I think you could reasonably guess that anything strategically that helps MSPs manage dozens of the hundreds, even thousands, of their end users’ data and applications, that’s fair game. If it’s not in that broad suite, it’s probably a little bit outside Datto’s wheelhouse. That leaves us, we told investors, $28 billion of current market opportunity, and we think that probably more than doubles over the next five years. So there’s plenty of room for us, and plenty of room for others.