ConnectWise Capital: Two Years Later

connectwise capital

January 25, 2012, will mark two years since ConnectWise launched ConnectWise Capital, a $20 million investment fund that seeks to incubate channel-centric technology companies.

Key Moves

Yes, ConnectWise Capital was designed to help channel partners (the IT Nation, as ConnectWise calls ’em) manage and grow their businesses. But the ConnectWise Capital investments also involved strategic competitive moves. Specifically, I believe…

The Chess Match Changes

I can’t speak for ConnectWise, but I believed the competitive battles listed above were inevitable. But so far they’ve yet to fully emerge. The evidence:

Kaseya: I believe Kaseya remains the largest provider of IT automation software to MSPs. But Kaseya’s PSA effort, rebranded as Kaseya Service Desk, has yet to disrupt the traditional PSA market. Perhaps that’s because Kaseya has been really busy extending its software module strategy for MSPs and enterprise customers.

Autotask: Autotask sold VARStreet back to VARStreet’s employees a few weeks ago.

Zenith Infotech: The company maintains a big MSP installed base, and Zenith Infotech has been pushing hard into the private cloud market with MSPs. But Zenith Infotech also defaulted on a bond payment in September 2011, and since that time Zenith Infotech has been locked in a legal dispute with bondholders. At the same time, CharTec has offered a range of services that don’t exactly compete with Zenith Infotech.

Successful Investments, Nonetheless

So did ConnectWise — through ConnectWise Capital — make competitive moves that weren’t needed? Actually, the preliminary results look good.

To the best of my knowledge, LabTech continues to sign up about 100 new MSPs per month and the company has introduced pricing competition in the RMM software market — a healthy trend for MSPs. Also, Quosal — the quoting and sales proposal software platform — is in growth mode. Bellini thinks Quosal could ultimately enjoy at least a 50 percent attachment rate with new ConnectWise sales.

And in many respects, CharTec has been a successful investment — though I have a hunch the financial dynamics of the CharTec deal are different from ConnectWise’s investments in LabTech and Quosal.

Rethinking Competition

When I think of the MSP software market, I think of a famous line from Steve Jobs, who once said:

So how would I apply that statement to the MSP software market? For ConnectWise to win, Autotask, Kaseya and Zenith Infotech don’t always have to lose. In fact, I believe ConnectWise, Autotask and Kaseya each remain in growth mode — though I can’t make a firm statement about Zenith Infotech’s current growth status, given the debt default.

Also of note: many companies that compete with the ConnectWise Capital investments — names like GFI Max, Level Platforms, N-able, QuoteWerks and PacketTrap MSP — remain in growth mode.

Serving IT Nation

For the Bellini Brothers to maintain their own winning streak, ConnectWise must follow three principles:

At times the ConnectWise Capital investments have triggered some competitive angst. But the investments have also helped MSPs to negotiate better pricing with a range of software companies.

Checking the Account Balance

One final thought: When ConnectWise Capital launched in January 2010, ConnectWise said the fund would contain $20 million for channel-centric investments. I wonder: How much of that $20 million has ConnectWise pumped into CharTec, LabTech and Quosal? And how much money — if any — remains for additional investments elsewhere?

Stay tuned.