How can tech startups grow in Michigan? Look to Grand Rapids-based Blue Medora LLC. Its founders and investors say it is a textbook example of how Michigan's high-tech startup ecosystem can work.

Blue Medora makes software that monitors the performance of large IT companies' cloud-based applications. Customers include IBM, Oracle and VMware. Blue Medora made almost $10 million in revenue last year and is on track to double that this year.

The company was founded with a niche technology that could quickly generate cash flow. Then it got seed funding from two strong supporters of early-stage companies in Grand Rapids — Start Garden, a seed-stage venture capital fund and business incubator founded in 2012 by Rick DeVos, and the Grand Angels, an active angel network.

Its Series A round of venture capital, of $4.6 million in 2015, was led by Ann Arbor-based eLab Ventures LLC, a Michigan firm that scouts out deals in the state. Moreover, it was joined by VMware Inc., a highly regarded Silicon Valley IT company that gave Blue Medora instant national validation.

Its much larger Series B round of funding, of $8.6 million last year, was led by a larger regional VC, St. Louis-based Lewis & Clark Ventures, which further validated the company's business model. With the $1.25 million the company raised in seed funding, it has now raised almost $14.5 million in equity funding.

"This is a great example of the story you want to see in Michigan. Local angel funding, then local venture capital funding and then it attracts funding from outside Michigan. It's just a great example," said Doug Neal, a partner at eLab Ventures who sits on Blue Medora's board.

"We believe Blue Medora is providing deep, game-changing insights that weren't being addressed in the rapidly growing IT operational-analytics market," Brian Hopcraft, managing director of Lewis & Clark Ventures, said in a press release when his investment was announced.

"Blue Medora's team has a lengthy track-record (and) CEO Nathan Owen has done a great job leading and scaling the company," Pramad Gosavi, a member of the strategy and corporate development team at VMware, told Crain's.

Owen says there is a double meaning behind the word "blue" in the name of the company. "Blue" is part of the Big Blue nickname for IBM, where Owen once worked and which was his first customer. It is also the color of his favorite lake, Lake Medora at the top of the Keweenaw Peninsula in the Upper Peninsula.

Nathan Owen grew up in the UP town of L'Anse and went to high school in nearby Houghton, a few miles south of Lake Medora, a deep, dark blue lake with very little development, several islands, beaches and not a few bald eagles.

He was a political science and history major at Central Michigan University but was something of a geek, learning how to code and working in the school's computer lab. After graduation in 1994, he went to work as a software architect for Isocor, a New Jersey company, then in 2001 co-founded OctetString Inc., an IT company in Illinois that was sold in 2005 to Oracle.

From 2003-2007, Owen was a business development manager for IBM, working with a product called Tivoli Alliance, which helped IBM customers monitor software performance.

In 2007, Owen and Carl Erickson, CEO of Grand Rapids-based Atomic Object LLC, a Web and software development company, co-founded Blue Medora. The business plan was for Blue Medora to create software that would bolster Tivoli's capabilities.

Erickson provided capital and software engineers. Owen had a room at Atomic Object's headquarters and worked without employees for the first year. In 2008, IBM signed a license and Blue Medora quickly ramped up revenue.

Later, Blue Medora added Oracle, BMC and VMware as customers. In 2012, Owen was named by IBM as one of its inaugural class of IBM Champions, a designation for top vendors.

In 2013, the company changed its business model. Until then, it was licensing its technology to large IT companies, who in turn sold it to customers under their own brand names. "I thought, 'Let's go to market directly with our own products and eliminate the middle man,'" said Owen.

Until then, Blue Medora had grown without any marketing. Ramping up marketing and sales required capital, which is where Start Garden and the Grand Angels came in, with a seed round of $1.25 million.

In 2014, Blue Medora released a performance-monitoring tool that could predict when trouble was about to occur. The next year, VMware incorporated that tool into one of its cloud-based monitoring products.

"Revenue began growing pretty quickly," said Owen. The time was right to raise a major funding round to accelerate sales and marketing, and VMware was eager to join.

"VMware was a darling of Silicon Valley. For them to invest in a Midwest tech company raised some eyebrows," said Owen.

"For most data center operations teams, it is pretty hard to get a comprehensive view of what's going on in their IT ecosystem. Blue Medora products identify performance issues and gain deep insights into the health, risk and efficiency of the applications," said VMware's communications team in an e-mail to Crain's.

Blue Medora now employs 95 and plans to hire 15-20 more this year.

Despite the revenue growth, another funding round might be necessary to keep up with growing demand. "We'll ride this growth and then make that call later this year," he said.

Original article — http://www.crainsdetroit.com/article/20170611/NEWS/170619996/how-can-tech-startups-succeed-in-michigan-look-to-blue-medora