One nifty aspect of Arista’s IPO is that we get to find out how much of the company Andy Bechtolsheim owns.
It’s right here, in today’s S-1 filing. His stake in Arista is … is …
Huh. It’s blank.
Blank spaces are common in the first draft of an S-1, especially for undetermined factors such as the stock’s price range. Arista’s is no exception. It’s less common to find one where the top shareholders’ stakes aren’t specified, though.
In case you’re thinking, “Who cares?” — be aware that this is a pretty famous IPO. Arista’s quick rise, Bechtolsheim’s Silicon Valley cred as a founder of Sun Microsystems, the fact that Arista never took any venture capital — all these factors have helped build the Arista mystique. The S-1 lists 17 underwriting banks, led by Morgan Stanley and Citigroup.
Here’s the deal. According to the S-1, Bechtolsheim and co-founder David Cheriton loaned Arista $12.5 million apiece in 2011 at an interest rate of 6 percent per year, payable Dec. 31, 2014. Both founders intend to convert the principal and interest amounts outstanding into common shares of stock at the IPO, according to the S-1.
For the moment, Cheriton holds about 13.9 million shares, and Bechtolsheim roughly 12.3 million, and each with get a number of shares yet to be determined as payback from those loans. The two of them and CEO Jayshree Ullal (roughly 4 million shares) are the only shareholders owning more than 5 percent of the company.
Here’s another interesting tidbit: Cheriton founded a company, Optumsoft, that’s in a dispute with Arista that could lead to a lawsuit.
In 2004, Optumsoft provided Arista with a tool to develop some parts of Arista’s EOS operating system, including a runtime library. In November, Optumsoft claimed it’s the rightful owner of certain EOS components that were created using the tool — something that might be true depending on the terms of Arista’s license to the tool.
If Optumsoft took that case to court and won, it’s possible that Arista would have to give Optumsoft pieces of EOS. And then, it’s possible Optumsoft could turn around and hand those to Cisco or any other Arista competitor.
It’s a lot of “ifs,” but it’s also an unusual dispute. “We do not believe a loss is probable; however, it is a reasonable possibility,” the S-1 reads.
Optumsoft also claims Arista breached the companies’ agreement, apparently by giving a third party access to some Optumsoft source code.
Arista’s Balance Sheet
For the big picture about what the Arista IPO means, you can read Matt Palmer’s analysis, “What You Should Know as Arista Files Its S-1,” published Sunday afternoon before all the details were available. For a little more about those details, read on.
Arista really has been growing gangbusters, as the company has claimed, and even made a profit at it. Sales since 2010 have shown a compound annual growth rate of 71 percent:
Per Diluted Share
During that period, Arista’s customer base grew to 2,340 from 570, and its headcount grew to 750 from 100.
Despite the customer-base expansion, Arista has been relying on large customers to a greater degree. The top 10 customers represented 43 percent of 2013 revenues, up from 32 percent in 2011. Microsoft accounted for 22 percent of Arista’s sales in 2013, up from 10 percent in 2011; no other company is listed as representing at least 10 percent of sales.
Arista has plenty of uses for the cash the IPO will raise, but it’s not exactly desperate. Arista’s cash and equivalents total a whopping $113.7 million.
(Photo: Bechtolsheim, left, in a fireside chat with Mark Andreessen at the Open Compute Summit in January.)