Lessons learned from the sad end of a great little company

We all know the rules of the game when we get into it, but that doesn't mean that these rules are right. Just ask Identity Engines.

Around four years ago, I got a call from some of the original founders of a small network identity and authentication company that eventually evolved to become Identity Engines. In simple terms, the company built an enterprise-class Radius server that greatly enhanced the intersection between networking, identity, and security.

From my first meeting with two or three people, ID Engines raised a few rounds of financing, hired some really smart folks, and developed a product. The company also was able to ride the momentum of an IEEE protocol named 802.1x for authentication. Geeky? Yes, but 802.1x is slowly gaining a lot of momentum in wired and wireless networks.

As recently as a few months ago, I thought ID Engines was as close to a sure thing as there is in our quirky little industry. The company had talent, customers, and a growing market. What else do you need? Money. IE Engines needed another round to get to the next level. Unfortunately, this is where my "sure thing" fell apart.

From what I gather, ID Engines got caught in a VC vortex filled with greed, ignorance, and a fair amount of bait and switch tactics. The VCs either didn't get it or didn't want to get it. Regardless, a very promising company and talented management team is now essentially defunct, the customers were shoved aside by investors, and all that's left is four years' worth of sweat equity-based intellectual property for sale.

I am not an investor in ID Engines nor do I know everything that happened with negotiations over the last few weeks. What I do know well, however, is the high integrity and professionalism of the team and the market opportunity squandered. I just don't get it.

In spite of their industry background, VCs care about one thing: ROI. Unfortunately, this means that they end up playing a game of chicken with people's lives. We all know the rules of the game when we get into it, but that doesn't mean that these rules are right.

Our industry enjoys a lot of great folklore around smart investors, driven technologists, and garage-based start-ups that became Wall Street darlings. Great imagery and mythology, but it ignores the dark side of our industry's Faustian compromise with VCs. Just ask Identity Engines.

Jon Oltsik is a senior analyst at the Enterprise Strategy Group.
 

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