Buyout Battle Highlights Dell’s History, Role in Austin Startup Scene

While it’s still uncertain if Michael Dell will succeed in bringing his namesake company private, the approval of his more generous buyout terms by a special committee on Friday does seem to make his path easier.

Shareholders convened very briefly Friday to accept a proposal that sweetens the bid by Dell and Silver Lake Management by $350 million (to nearly $25 billion), while also raising the offer price to $13.75 a share and paying a special dividend of 13 cents. In return, the board changed voting rules that lower the bar for takeover. Billionaire investor Carl Icahn and large shareholders such as Southeastern Asset Management oppose the buyout and have sued to prevent such rule changes. A new shareholders’ meeting is set for September 12.

The wrangling over arcane rules of corporate governance aside, the battle also casts a spotlight on Dell’s—both the company’s and the man’s—relationship to Austin’s startup community. After all, it was his tinkering in his Dobie dorm room three decades ago that launched Dell and put Austin, TX, entrepreneurs on the map.

Certainly, Michael Dell and his wife, Susan, have been generous contributors, both personally and through their foundation, to many Austin institutions, including the Austin Children’s Museum; Dell Diamond, home to a triple-A minor baseball team in Round Rock; and the new Dell Medical School at the University of Texas at Austin.

But how strongly has Dell stayed connected to and nurtured Austin’s startup community?

“There was general disappointment with the so-called Dellionaires,” says Bob Metcalfe, inventor of Ethernet and a professor of innovation at the University of Texas at Austin’s Cockrell School of Engineering. “They haven’t played the role they should have in follow-on startups to Dell. In Silicon Valley, these sorts of people become investors, form angel groups.”

It’s not that Dell hasn’t looked to startups to beef up corporate lines of business, he points out. For example, in May, Dell acquired Enstratius, a Minneapolis-based provider of cloud-management software, as part of its plans to transition from personal computer sales into enterprise services.

“I was disappointed that Dell opened his research center in Silicon Valley,” Metcalfe says of the Dell Silicon Valley Research and Development Center, which got started two years ago. “We had hopes that we might have one in Austin.”

He understands the attraction to Silicon Valley, of course. “It’s a complicated thing,” he says. Still, Metcalfe, an Xconomist, has broached the issue of the need for Dell’s leadership in the local startup community with the founder himself.

He first met Dell when the entrepreneur crossed the basketball court at the Frank Erwin Center during halftime to welcome Metcalfe to UT and the Austin scene. The men had a candid chat about the need for a stronger role for Dell in building entrepreneurship in the community. And Dell has responded; he came to Metcalfe’s classroom to speak. “I needed his reputation to be different; I needed his reputation to be as entrepreneur,” Metcalfe says he told Dell.

Steve Guengerich, a longtime Austin entrepreneur and current co-founder at the startup Appconomy, concurs. “I’ve been in Austin since ’94 … Every month I take a day off and come into the city and have conversations with the startup community, and the only time I connect with Dell is through ex-Dell employees.”

But, a couple of days before the first shareholder vote was scheduled last month, Guengerich says he received a call from a senior-level Dell executive out of the blue. “A current Dell—director level—guy searched me out of his own volition because he was wanting to make sure he was staying relevant and keeping his units connected to the energy and ideas of the startup community,” he says.

It was the first such conversation he’d had with a Dell executive since he came to Austin. They met at a local Starbucks and spoke for nearly an hour. “He wanted to make sure he was doing his part of staying connected,” Guengerich says. “That to me is a very powerful statement.”

For now, both sides of the buyout offer are regrouping, preparing for the September shareholders vote. But perhaps Dell might become, one executive at a time, a greater presence in Austin’s startup scene.

“As a former entrepreneur, I’m rooting for him to get his company back,” Metcalfe says.

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