E574 PDF ENG The Fall of Nebula

For the exclusive use of S. Bhowmick, 2017.
CASE: E-574
DATE: 10/09/15
NEBULA: THE FALL OF A COMPANY

I thought we were going to take down VMware. I thought we were going to be the main fabric of
1
private clouds built around the world.
Ted Schlein, General Partner at Kleiner Perkins Caufield & Byers
It was late in the evening, and Gordon Stitt and Chris Kemp were exhausted. They had just spent
the past several days completing the arduous sale of Nebulas assets to Oracle. They were in
need of a break, so they decided to go for a walk. Stitt and Kemp, the chief executive officer and
chief strategy officer/founder of Nebula, respectively, reflected on their experiences with the
company and wondered where it all went wrong. Which issues were preventable, and which had
the greatest impact on the failure of the company? In just a little over two years, Nebula went
from being considered One of the Top 25 Enterprise Startups to Bet Your Career On2 to
halting all operations and closing its doors.
In its early days, Nebula seemed like a guaranteed successthe founding team included Chris
Kemp, who helped start OpenStack (an open source cloud computing project) during his time at
NASA (See Exhibit 1 for Kemps resume). The early management team included Jon
Mittelhauser, who helped invent the first web browser, and Dave Withers, a former Dell sales
executive. Additionally, Kemp and his cofounder Devin Carlen were able to convince talented
NASA engineers to join them on their cloud computing quest.
Top-tier angel and VC investors, including Ted Schlein (Kleiner, Perkins, Caufield & Byers),
Andy Bechtolsheim (Sun founder and Google angel investor), and Ram Shriram (Google angel
investor), backed the company from its onset, and the private cloud computing space appeared to
be a hot early-stage market. Nebula launched the first version of its product in the spring of
2013 to great fanfareincluding a series of flashy YouTube videos, glossy promotional material,
1
Interview with Ted Schlein August 13, 2015. Subsequent quotations are from the authors interviews unless
otherwise noted.
2
Julie Bort, 25 Enterprise Startups To Bet Your Career On, Business Insider, February 7, 2013,
http://www.businessinsider.com/25-startups-to-bet-your-career-on-2015-2015-2 (October 15, 2015).
Matthew Saucedo (MBA 2015), Lecturer Robert Siegel, and Lecturer Mark Leslie prepared this case as the basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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This document is authorized for use only by Shuvam Bhowmick in MOR 554-Leading Innovation taught by MichaeL A. Mische , University of Southern California from May 2017 to August
2017.
Nebula: The Fall of a Company E-574 p. 2
and a lengthy schedule of speaking engagements for Kemp. Pent-up excitement about the
underlying technology contributed to approximately $1 million in first quarter revenue.
Management was thrilled, and thought they were the ones who had finally cracked the hybrid
cloud market.
However, sales soon began to slowcustomers seemed to struggle to understand Nebulas

product, and many chose to go with competing and older solutions they understood. How could
such a hot company, led by founders with impressive backgrounds and supported by some of the
most noteworthy investors in Silicon Valley, have derailed so quickly?
BACKGROUND
Cloud Computing
Cloud computing was a model for enabling network access to a collection of shared computing
resources. Key benefits to the successful implementation of cloud computing included
scalability, instant provisioning,3 virtualized resources,4 and the ability to quickly scale resources
to match demand spikes.
There were two general types of cloud computing networkspublic and private clouds. In the
public cloud, companies paid to use a portion of the massive networks shared computing power.
Most companies used public clouds to deploy web servers or development systems, where access
to scalable computing power was generally more important than adherence to strict security and
compliance requirements. While the public cloud was technically considered safe, firms still had
to give up the notion that their data was not on their own on-premise servers, but rather on
servers that could be physically located anywhere in the world. Private cloud computing,
however, afforded a controlled environment where all hardware, storage, and networks were
dedicated to a single organization, and could be secured behind the organizations firewall.5
Early Attempts at Hybrid Cloud Computing
Numerous start-ups attempted to focus on solving the challenge of merging public and private
clouds, with each company taking a unique approach. Nimbula, which launched in 2010,
developed software that allowed users to implement infrastructure as a service (IaaS)6 public and
hybrid clouds. While the product was well received by industry experts, the firm struggled with
a lackluster private-cloud buying market that was confused by the available cloud options, and
an industry conventional wisdom that OpenStack (a particular type of cloud computing software)
would become the standard-bearer for private cloud computing solutions. Nimbula pivoted by
3
Provisioning is the process of preparing and equipping a network to allow it to provide new services to its users.
4
In computing, virtualization refers to the act of creating a virtual (rather than actual) version of something,
including virtual computer hardware platforms, operating systems, storage devices, and computer network
resources.
5
A firewall is a network security system that monitors and controls the incoming and outgoing network traffic based
on predetermined security rules.
6
Infrastructure as a Service (IaaS) is a form of cloud computing that provides virtualized computing resources over
the Internet. IaaS is one of three main categories of cloud computing services, alongside Software as
a Service (SaaS) and Platform as a Service (PaaS).
2017.
repositioning itself as an OpenStack distributor, but was ultimately acquired by Oracle in March
2013 for an undisclosed amount.
Eucalyptus, another early hybrid cloud computing start-up, built open source software that
allowed companies to create private and hybrid cloud environments that were compatible with
Amazon Web Services (AWS). One of the companys key competitive advantages was its close
relationship with Amazon, which ensured that customers could easily transfer data between their
on-premise data centers and Amazons public cloud.
Eucalyptus was founded in 2008, and by 2013 it had become a relatively mature, stable platform
with a healthy customer base across a variety of industries. However, in an August 2014 blog
post, the CEO revealed that the company had faced financial difficulties over the past several
years, citing a tsunami of competition in the form of OpenStack and other hybrid cloud
offerings. The company continued to struggle as more industry heavyweights chose OpenStack
as their preferred open source cloud solution. In September 2014, HP acquired Eucalyptus for an
undisclosed amount and earmarked $1 billion to build its own cloud computing software based
on OpenStack.
Mirantis was one of the few early private cloud computing companies to establish a sustainable
business model. The firm started out as a systems integrator that took the best OpenStack
modules from multiple vendors and built cloud deployments for customers. After establishing
implementation expertise, Mirantis launched its own customized version of OpenStack, and
serviced customers such a Comcast, Huawei, Getty Images, and Intel. As of August 2015, the
company had raised $220 million, and planned for an IPO the following year.
FOUNDING OF NEBULA
The spark for Nebula came in 2009, when Kemp (then CTO of information technology for
NASA) envisioned developing a computing system with an elastic infrastructureone that could
handle the massive data loads brought on by the Mars Reconnaissance Orbiter that had just
begun surveying Mars in preparation for the landing of the Mars Science Lab. This
computationally intensive process involved rapidly rendering data from multiple sources, all
while comfortably handling demand spikes that any new discovery might attract from the public.
Kemp saw this as a perfect use case to implement cloud computing technology, so he recruited
ten NASA engineers and began developing a solution using Eucalyptus. The team started to
encounter numerous problems with the off-the-shelf technology, so they decided to build a
custom solution themselves. Kemp recalled telling the team, Lets code this using Python. We
see whats been done here with Eucalyptuswe see flaws in it. Its going to be harder for us to
work with this company and this flawed product than for us to just start from scratch.7 And
with that, Nova, the cornerstone of the OpenStack project was created, and the seed that would
one day grow into Nebula was planted.
7
Interview with Chris Kemp, July 17, 2015. Subsequent quotations are from the authors interviews unless
otherwise noted.
2017.
OpenStack grew into an open source platform that allowed anyone to develop their own public
or private cloud computing system, and catered to an emerging trend in cloud computing where
firms sought to develop hybrid public and private cloud systems. This innovative approach
allowed organizations to maintain tight security controls on the private cloud, and manage
demand spikes on the public cloud. As Ted Schlein, one of the early investors, described:
Every major entity is going to have a private as well as a public cloud, and the border between
them will be porousthey will use the public cloud for overflow and keep certain data on-
premise.
Rackspace Hosting and NASA jointly released OpenStack to the public in 2010. Proponents of
OpenStack lauded the platform for its flexibility, agility, and collaborative open source
environment. Furthermore, the open source nature of the system gave customers the flexibility
to choose between providers based on their requirements. This meant that OpenStack users
could diversify their efforts and explore a wide range of implementation options, using the
services and tools that were best suited for their business.
Chris Kemp, Steve OHara, and Devin Carlen founded Nebula on April 1, 2011. The goal of the
company was to use the OpenStack platform to create a private cloud computing product that
enabled businesses to easily, securely, and inexpensively deploy large private cloud computing
infrastructures. Known as the Nebula One, the companys initial product was touted as allowing
businesses to build massive private computing clouds from tens or hundreds of inexpensive
computers.
Nebula One: The Cloud Computing Superhero
Nebula One was an integrated hardware and software appliance that provided distributed
computational, storage, and networking services in a unified system. It employed an operating
system called Nebula Cosmos, which was built on Nebulas version of OpenStack.
The Nebula team focused on developing an appliance that could fill the gap between the purely
public cloud offering of Amazon Web Services (AWS) and the private cloud computing
platforms offered by entrenched incumbents, such as VMware. As one of Nebulas executives
described:
Theres space for a third set of players. And that third group will be able to
control a companys costs using the cloud model, which is a very different model
of computing compared to the traditional enterprise/virtualization model. This
third player will provide an alternative to purely public cloud and purely on-
premise virtualization solutions. Firms will be able to run a system that they own
and control, la VMware, with the cost structure (particularly of hardware
investment) of an Amazon Web Services.
Essentially, Nebulas product would provide customers with an all-in-one cloud computer
composed of a collection of inexpensive servers that would be used similarly to Amazon Web
Services, but could be purchased by large enterprises, and operated in their private datacenters.
The company hoped their solution would become the standard-bearer of hybrid clouds around
2017.
the world because it would combine an intuitive user experience with a rapidly growing open
source platform.
The Nebula team saw the Plug and Play nature of their product as a key competitive
advantagesince an appliance designed for a specific use case required little configuration on
the part of the user. Mark Leslie, a Nebula board member, described the nature of appliances:
They used to call it a toaster. You plug it in, and you make toast.8 In this case, Nebula sought
to design an appliance that would allow users to easily create their own hybrid public/private
cloud computing systems.
Appliances also afforded the potential for a higher-priced product compared to selling software
alone, as Leslie explained:
The idea that I loved about Nebula was that it was an appliance. And in my mind,
an appliance takes a lot of configuration variables out of the picture. It allows you
to build something thats pretty solid, pretty low friction. Its higher priced than a
pure software product, but customers will buy it because it works, particularly
customers who are getting started. And later, you can turn it into a software
product if you want, when you have the ability to do that.
In 2013, Nebula released the inaugural version of the Nebula One, and the market seemed ripe
for the taking. The companys sales teams sold approximately $1 million worth of product in the
first quarter alone, and major players in a variety of industriessuch as DreamWorks, Sony,
Amgen, and Genentechnumbered among Nebulas customers.
The road gets bumpy
Sales began to slow after the first quarters impressive results. After several continuous quarters
of lackluster results, the board convened to discuss bringing on a new CEO. The board members
and investors supported the company and believed in the vision of the founders, but felt it was
time for a more experienced executive to take the reins. Kemp supported the decision, and after
a lengthy search process, the group decided to hire experienced Silicon Valley executive Gordon
Stitt (See Exhibit 2 for Stitts resume). Kemp stayed on as Nebulas chief strategy officer.
Stitt spent three months performing diligence on Nebula before making any changes to the status
quo. Through his research of the product, market, and team, he began to notice cracks in the
companys armor.
So what do we do with it?
The nascent private cloud computing market, combined with growing hype around the
OpenStack movement, meant that many potential customers were interested in the Plug and
Play nature of the Nebula One, but many did not know how they could employ it. As Stitt
described:
8
Interview with Mark Leslie July 17, 2015. Subsequent quotations are from the authors interviews unless
otherwise noted.
2017.
My initial impression was, Wow, this is a great opportunity and a good time. Its
early, but its a good time. However, the challenge of any OpenStack company
is realizing that OpenStack is a mere piece of the puzzle for the customer. Its
infrastructure as a serviceits not a stand-alone complete solution, which took
me awhile to figure out. People would buy our system and ask us, Okay, you
sold me this, now what do I do with it?9
In other words, Nebulas All in One appliance was a convenient option for customers, but only
if they understood the product and where it fit into a broader solution. In light of this
complexity, many customers found solace in the simplicity of Amazons straightforward public
cloud offering.
All or Nothing
One challenge that comes along with designing a new computing system involves the need to
integrate with a customers legacy systems and enable a smooth transition to future alternatives.
Stitt likened the compatibility issues faced by Nebula to the issues faced by many companies in
the networking space, an industry in which he had extensive experience. Stitt recalled that
during his time as CEO of Extreme, a networking solutions company, he saw many firms come
out with innovative approaches to networking issues only to be rejected by large potential
customers who were unwilling to completely redo their networking systems. As he recalled:
You see a lot of companies come out with this brilliant idea for networking, and
they go to these big potential customers and say, Hey, weve got this great
solution. Well the problem is, you cant rip out your network and put in a new
one, because your business has to keep running. You have to do it in a partial
way. And you have to be compatible with whats there. I realized that enterprises
were unable to change their systems. Its too expensivemany had 30-year-old
Digital Equipment systems running, so our solution had to be compatible with 30-
year-old networking used by a regulated company. If you look at the lines of
code in a networking product, 80 percent is legacy stuff that one person uses,
because transitioning to a new solution is an incredible challenge. I think
OpenStack really missed the questionHow do you successfully manage this
transition?
Product Cost and Quality
Building the first commercial OpenStack implementation was a big project; product
development costs at Nebula were high as a result of this. Additionally, the company struggled
to develop a well-functioning product because of the immaturity of the OpenStack. The team
spent $5.4 million on hardware development, which was spurred by a desire to create a pristine
product experience that rivaled the sleekest consumer tech products on the market. The Nebula
Ones faceplate provided such an example of the teams desire to create a stunning customer
experience (see Exhibit 3). The initial faceplate cost $800 to produce, and dazzled the customer
9
Interview with Gordon Stitt August 13, 2015. Subsequent quotations are from the authors interviews unless
otherwise noted.
2017.
with a touchscreen display, vanity lighting, and messages sent to the customer in Klingon, the
fictional Star Trek language.
Unfortunately, all of these aesthetic touches may have been over the top. In an organization,
servers were typically tucked away within corporate data centers or co-location facilities
designed to keep them cool and protected, which meant that customers rarely, if ever, came
across the faceplate designed by the Nebula team. Stitt recalled sales meetings where potential
customers would often ask, Is it cheaper if I dont get that faceplate? He also recounted a
particular meeting with a large Midwest oil company, where the head of IT was amused by the
dazzling array of lights but then commented, Son, Ive worked for this company for 20 years. I
have no freaking idea where our data center is.
Nebula also dealt with product quality issues. The company did not develop a stable version of
the Nebula One until just a few months before the firm closed its doors. Schlein explained, At
the very end, they had gotten the product to the point of stability. It wasnt perfectionit was
stability customers were looking for. The easy, intuitive installation process that the founders
envisioned never materialized, as Nebula installation teams were often called to client sites to
troubleshoot the installation process.
In April 2014, Stitt hired Herb Schneider, a storage and networking expert with whom he had
worked extensively in the past, in an attempt to improve the situation. One of Schneiders first
moves as the newly appointed vice president of engineering was to hire a three-person quality
assurance (QA) team to assess the readiness and stability of a minor update Nebula was hoping
to release to customers. The team built 21 versions (release candidates) before delivering a
product that would pass muster with this new QA organization. With each failure the
engineering team required several days to review and re-release the code, which drained Nebula
of much-needed cash. As Stitt explained:
Every time wed do a test, something else would get uncovered. It was very
frustrating for the entire team. Our security team was outstanding. However, the
problem was that because they were so good, we used it as a differentiator and
placed too high of a priority on security. This caused complexity in testing and
slowed software development. There were also a lot of debates over this priority,
which also slowed software progress. Although our design was a conceptually
strong solution to prevent hacking, it proved unnecessary and was a major
problem for doing rapid software releases and updates. There was fundamentally
no user benefit.
The combination of inefficient hardware configurations and extensive security implementation

added a 10 percent overhead to every release. Stitt estimated that a single mistake could cost
millions due to technical debt that accrued in the development process. When a development
team makes a change to a codebase, there is often the need to make other coordinated changes in
other parts of the code. When these required changes are not completed, they become debt
that must be paid at some point in the future. Just like financial debt, interest can accrue on
these debts, making it cumbersome to scale a project. Poor architectural design also made it
difficult to rebound from server failure, a key feature in any system. Stitt recounted a situation
when the team discovered a problem with the emergency plan the servers followed in the event
2017.
of a failure. Server networks were typically built with a redundant network configuration, where
if a single server went down, the remaining servers could handle the workload, and the network
would remain online. Unfortunately, the Nebula One was designed such that if a failure
occurred within the embedded network switch, all of the attached servers went offline and
caused a significant outage. In addition, the failed system could not be swapped out due to a
security feature that required the same system to be physically repaired, rather than replaced.
The team had originally designed this for security reasons, but it unfortunately made the network
inoperable in the event of a failure.
MARKET ISSUES
Nebula: The Third Leg of the Cloud Stool
Nebula sought to gain market share in the cloud computing space by positioning the Nebula One
as a third option nestled between Amazons massive AWS public cloud offering and VMware,
the market standard for on-premise solutions. AWS provided minimal start-up costs but security
concerns, while VMware afforded tight security controls but required very high start-up and
scaling costs, and would lock customers into lengthy contracts.
One of AWSs key advantages was that it was very simple for companies to try. All you need
is a credit card and a web browser, recalled Stitt. While AWS allowed for a quick and easy
start-up process, it became expensive for companies to operate on a large scale. Nebulas
potential customers were those organizations who were looking to reduce the costs of operating
cloud computing infrastructure at scale, while maintaining fast data transfer rates. These types of
organizations included early adopters in the media industry and scientific institutions.
Leadership at Nebula also bet that large institutions in industries such as finance, healthcare, and
consumer retail were too wary of security concerns to put their entire network onto AWS (hence
the need for their own private clouds), but would still need access to a scalable cloud system
beyond their on-premise solution.
Nebula saw this market gap as an opportunity to scale quickly with little concern for competing
solutions. However, three months into his role as CEO, Stitt discovered that VMware was
developing a product offering that would allow its customers to experiment with the OpenStack
platform on their current systems. This reduced the efficacy of Nebulas sales pitch to large
organizations, as they could test the hybrid public/private cloud configuration without having to
purchase a new network. This defensive move by VMware provided free OpenStack access to
its customers in an attempt to stall the hybrid cloud market, which brought it into closer direct
competition with Nebula. As Stitt recalled:
This is competition. What theyre doing is stalling the market. That gives them
time, and at their scale theyd be able to come up with a competitive solution if
they needed to. This move gave VMware the ability to sit down with a large
enterprise thats trying to beat them up on pricing and threatening to switch to
OpenStack to respond with, Well, you have OpenStack for free. Why dont you
work with it for a while and then decide? If Im an enterprise salesperson, this is
a pretty powerful tool to haveand I think it worked reasonably well on the large
enterprises, particularly those that were conservative in dealing with new vendors.
2017.
Market Timing Concerns
Although investors and members of the management team were all convinced of the inevitability
of OpenStack cloud computing, Nebula entered the market at a time when the benefits may have
been ambiguous to customers, and the company grappled with a customer base that was unaware
of the capabilities possessed by the two main competitors: AWS and VMware. According to
Stitt, If people had a clear understanding of what Amazon could and couldnt do, and they knew
what VMware could and couldnt do, then the market opportunity would be easier to describe.
The sales cycle would likely be shorter, because people would understand the limitations of both
competitors.
Kemp realized that their product design efforts may have been too advanced for the market, and
that customers were falling for the OpenStack hype without realizing the technologys true
potential:
One year in, we were building the product that the market would consume at scale
in ten years. I look back on that and realize we spent so much time and money
just trying to make this beautifully simple product experience. We ultimately
delivered that experience, even if it had rough edges at first.
However, customerseven when they got it runningwerent expanding it fast

enough. This gets right to the heart of why I think we didnt succeed. There was
huge pent-up demand and potential customers knew they wanted OpenStack, but
they didnt know why they wanted it.
It was common for Nebula to enter a sales meeting with a potential customer, only to find that
the customer was more interested in learning about the underlying technology than purchasing a
system. Stitt recounted a meeting the Nebula sales team had with a financial institution, where
20 information system specialists were ushered into the room to listen in on the pitch. He
quickly realized that the company was not looking to purchase a system, but was instead looking
to get a better understanding of OpenStack. It also contributed to a general hesitation for
customers that had purchased Nebula One systems to move them into production. In other
words, organizations would purchase systems and test them, but never used them to replace their
current operating system. Stitt commented, People would buy it and tinker with it, but never
put it into production. We worked hardwe had really good sales people that really worked
hard to get customers to move to production, but the product wasnt ready, and arguably,
OpenStack itself wasnt ready, so many potential customers looked at AWS instead.
Stitt recalled another meeting with a genomics company, an early customer and supporter of
Nebula. The company had purchased several systems and the Nebula sales team was curious to
know when they were going to put the systems into production. So Stitt asked the firms
information system specialist, who replied: Were not going into production with this. No,
were locked into VMware for several years. All of our production is on VMware. Were just
using Nebula for software development. This made Stitt realize that Nebula customers were
simply dabbling with their new technology and the OpenStack platform. The qualification of a
new computing technology is very complex, and transitioning a company completely over to the
new network, new storage, and new software proved too risky, despite the potential benefits.
2017.
TEAM DYNAMICS
Nebula struggled with employee performance along several key axes. Leadership struggled to
balance the need to develop a growing and profitable company with the desire to live up to the
norms of the open source communitywhich included flexible software release cycles, the right
to decision-making based on the amount of code contributed to a project, and a reliance on users
to find (and sometimes fix) bugs in the code. Tensions also arose from the differences between
developers with web technology experience and the requirement to build an enterprise solution.
These issues were exacerbated by a high amount of team dispersion.
Team Locations: Here, There, Everywhere
Nebulas employees were scattered across several offices in multiple states. In California, the
company headquarters was located in Mountain View, while several employees used a satellite
office in San Francisco, and three employees worked in another satellite office in the East Bay.
In Washington, the company had a team in downtown Seattle, which included Devin Carlen (one
of the founders), two engineering directors, and eight engineers. Two of the three engineering
leads at the company (Control Plane, User Experience, and Security) were located in Seattle.
Hardware manufacturing was performed at a Nebula-operated manufacturing facility in
Redmond, about a 60-minute drive from the Seattle office. Nebula also employed outside sales
representatives in New York City, Los Angeles, Austin and Washington, D.C.
Stitt shared his general thoughts about the difficulties that can arise with team dispersion at a
new company, Geographic dispersion at a start-up is difficultcommunication of plans, vision,
and status is so important in the early stages, and a lot of that is done in casual conversations.
That said, it can be hard in emerging technology companies to get engineers with particular
skills, so sometimes you have to have multiple offices.
The San Francisco and East Bay satellite offices were such attempts to hire and maintain
engineers whose particular skills were vital to the company. As Stitt further explained, these
satellite offices were meant to cater to the needs of irreplaceable resources, rather than operate
as fully independent office locations. He explained, Companies need to hire the best and the
brightest, and they are hard to find and expensive. Many of these great people are located
somewhere else, and given the congestion in Silicon Valley and elsewhere, they dont want to
spend hours commuting.
Nebula leveraged an arsenal of communication technology to help foster conversation amongst

the network of offices. Management employed high-definition video conferencing extensively
and used group-messaging tools such as HipChat. Since the company was started in two
separate locations (Mountain View and Seattle), these technologies were ingrained in the culture
of the company.
Nebula experienced the most issues related to team dispersion in the Redmond manufacturing
facility. As Stitt commented, It was a solid hour away from the Seattle office, so it was rare that
people visited (either way). He also reflected on the difficulty of manufacturing hardware as an
early stage start-up, particularly at a remote location:
2017.
That said, I do believe that manufacturing was out of sight, out of mind from
the executive management perspective. Mountain View thought of them as a
satellite Seattle office, so they were one more step removed. Most of the Seattle
team was software folks, so they couldnt provide a lot of help. There was little
oversight of quality metrics, little documentation, and no financial oversight from
corporate. For example, our accountant didnt visit the site until I insisted that she
go.
CULTURAL ISSUES
Lack of engineering process, high turnover, and open source culture

Investors and management alike began to wonder whether they had assembled the right team to
build a new enterprise solution, as many of Nebulas developers had more experience in web
technology than enterprise software development. There was an additional hesitation around
whether or not the team was committed to developing the best product possible. As one investor
explained:
There was no engineering discipline. You did not have A-level engineers hiring
other A-level engineers and holding them accountable. It was a typically built,
stringent, staid engineering group. We episodically had some good engineering
managers come and go, but there was a lot of turnoverso you had a group of
engineers run by other engineers that thought, Well we ship things when we ship
themthey dont have to be high quality because quality doesnt really matter.
Well fix the bugs later. There was no discipline.
This questionable sense of engineering rigor intermingled with a general complacency that some
investors and managers felt came from the open source development culture. They were open
source dudes. Theyll hack when they want to hack, recalled one investor. Emphasis was not
placed on finding bugs in the code, because developers instead relied on the open source
community to detect issues. This also resulted in a lack of engineering documentation, which
compounded the already burdened quality assurance process.
As one member of the management team recalled, There were a lot of cultural problems in the
company. It felt like they were government workers. We would say, We have a crisis with a
customer, and they would reply, Yeah, but Im going bicycling this weekend, and youd sit
there and say, Huh?
Stitt would occasionally review the companys group chat system, and found that there were
rarely any active users after 7:00 PM. He explained:
I was usually the last one to leave the office. I like working late when its a little
quieter, but Id leave at 8:00 PM, and there might be one or two folks in
engineering. I recognize that creative people often keep odd hours, but there
wasnt the consistent overall level of intensity that I would expect in an early
stage start-up.
2017.
Nebula also had a somewhat high turnover rate40 percent of the company over its lifespan.
This high turnover led to instability in the product development process. Many within the
organization speculated that employees left because of management turmoil and leadership style.
A lot of these people came for three months and left, one employee commented, Initiatives
were fired up, with people saying Were going to set up a community, but we dont have a
product yet. Kemp postulated that the high turnover rate may have been partially to do with the
founding teams initial hiring strategy: My strategy was to bring a great team together, and then
if we make mistakes, Im just going to let those people go. I would routinely look at the team,
figure out whats working, and if its not working, I would let people go.
CONCLUSION
Kemp and Gordon finished their walk and returned to the tedious task of signing away Nebulas
remaining assets. Their contemplative discussion had revealed several missteps and missed
opportunities along the way, but they still could not decide on which issues played the greatest
role in the companys downfall. Some problems were certainly preventable, but others were out
of managements hands. Investors made every attempt to support the company along the way,
including writing checks to fund the struggling company in its final days. However, even if
management had succeeded in doing everything right within their control, would the company
still have failed?
2017.
Exhibit 1
Chris Kemp Biography
Chris C. Kemp is an entrepreneurial executive that has founded three companies and serves as a
board member or advisor to Planet Labs, Scalr, and Nixie. Chris co-founded OpenStack, the
largest and fastest-growing open source project in history.
Chris has been recognized in the 2014 CNBC Disruptor 50 list, the Silicon Valley Business
Journal 40 under 40, and received the prestigious Federal 100 award for his service at
NASA.
At NASA, Chris was responsible for pioneering work in cloud computing, open source, and open
government. Chris worked with the White House to develop the cloud strategy for the United
States federal government. Previously, he served as the CIO of NASA Ames Research Center in
Silicon Valley where he forged partnerships with Google and Microsoft and helped create
Google Moon, Google Mars, and Microsoft World Wide Telescope.
Prior to joining NASA, Chris helped create the third-largest online community Classmates.com,
was the founding CEO of the leading web-based vacation rental platform Escapia (AWAY), and,
as the founding CEO of Netran, developed the first online grocery shopping platform for Kroger,
the worlds largest grocery store chain.
Source: Chris Kemp.
2017.
Exhibit 2
Gordon Stitt Resume
GORDON STITT
NEBULA 9/2013-4/2015
CEO, CHAIRMAN OF BOARD
Brought in by investors to bring go-to-market experience to grow Nebula in the emerging private
cloud market. Worked with team to align OpenStack technology with Enterprise requirements.
Developed new market positioning and communications. Brought in new marketing team with a
focus on partnerships. Brought in new SVP, Engineering to accelerate next generation
development and enhanced enterprise capabilities.
ACCELERATED GLOBAL TECHNOLOGY CORP. 10/076/09

PARTNER, DIRECTOR
Co-founded SPAC (Special Purpose Acquisition Company) to do cross-border technology
acquisitions. Filed S1 in October 2007. Researched more than 2 dozen companies for potential
acquisition/investment. Window for SPAC funding closed early in financial downturn and we
missed market window for funding using public markets.
EXTREME NETWORKS (NASDAQ:EXTR) 1996-2011

MEMBER, BOARD OF DIRECTORS, CO-FOUNDER (2011)
Served on board of directors.
CHAIRMAN OF THE BOARD, CO-FOUNDER (2006-2011)
MARKETING CONSULTANT (7/2009-12/2010)
Asked by board to step in as part time employee in July 2009 to redirect company to new
markets and provide assistance in restructuring. Recruited small team and developed the
companys Data Center Strategy. Drove implementation through partnerships, channels and new
product architectures. Initial software product was a finalist for Interop Best of Show award in
2010. Data Center chassis product became core of companys product strategy moving forward.
During this period we had a CEO transition; I worked closely with CFO/Interim CEO in helping
manage company and recruit new CEO.
PRESIDENT & CEO, CO-FOUNDER (1996-2006)

Co-founded company along with Steve Haddock (CTO) and Herb Schneider (VP Eng.) to
build high performance network infrastructure for large enterprises and service providers.
We defined a new segment, Layer 3 Switching that revolutionized enterprise
networking business. Extreme was a major innovator winning awards for Best of
Show in 1997, 1998, 1999, 2000 and 2001, Product of the Year from several
publications throughout its history.
More than doubled revenue every year from 1996 to 2001 reaching $490 million in fiscal
2001. Extreme was ranked the #1 fasted growing company in Silicon Valley in 1999.
Major engineering investments included the development of two major switch operating
systems ExtremeWare and XOS, and 3 generations of custom ASICs. Managed multi-
site engineering: Silicon Valley, Southern California, RTP, and India.
Acquired several private companies: Mammoth Technologies (1996), Optranet (2000),
Webstacks (2000)
2017.
Structured strategic OEM deals with 3Com, Compaq, Siemens to build initial revenue,
then focused on channels. Built world-wide distribution model with indirect sales in
Europe, Japan, Asia and North America. Launched in U.S. in May 1997, Europe,
September 1997 and Japan, July 1997. International business contributing more than 50
percent of revenues to this day. Formed corporate strategic partnership with Avaya in
2003 that generated over $120 million in revenues for company.
Worked closely with major enterprise customers including: NTT East/Japan, Abbott
Labs, The Pentagon, Wynn Resorts, Lockheed-Martin, Reuters, Deutsche Bank, ESPN,
Compaq, and Ericsson.
Early innovator in the metro-Ethernet market defining a number of technologies that are
industry standards today. Spoke at many conferences evangelizing Ethernet as the
transport to replace traditional telecom technologies.
Raised three rounds of venture capital from AVI, Trinity, Norwest, Kleiner Perkins and
Integral Capital. Corporate investments from Siemens, 3Com. Raised additional funds
through Private Placement in 1998 led by Morgan Stanley with Integral Capital and
corporate investors. Created positioningNetworking the New Enterprisefor
successful IPO in 1999 and Secondary Offering later that same year (both led by Morgan
Stanley). After 2001 downturn raised $200 million through a Convertible Debenture led
by Goldman Sachs.
Retired as CEO in late 2006 and hired successor. Continued to serve company as
Chairman of the Board and aid new CEO in transition.
NETWORK PERIPHERALS (NASDAQ:NPIX) MARCH, 1989 MAY 1995

VP MARKETING, CO-FOUNDER VP/GM OEM DIVISION
Co-founded company with Darrell Scherbarth (VP Engineering). Served as VP Marketing from
inception until 1994, then served as VP/GM OEM Business Unit. Bootstrapped company doing
consulting for the first year, then raised venture capital from AVI and Alpha Partners in 1990.
Developed initial products FDDI adapters for servers. Launched products and hired initial
sales team. Hired CEO the following year. Launched Client-Server switch product category
to connect servers, desktops to corporate backbones which became basis for IPO in 1994.
IPO June 1994, Secondary Offering November 1994, both led by Lehman Bros.
Following IPO, became VP/GM of OEM business, drove OEM deals with 3Com, NetWorth and
others. Managed small engineering team that developed custom/semi-custom versions of
products.
SUN MICROSYSTEMS 1/888/89

Strategic Partner Manager. Managed strategic corporate relationships with Amdahl, Cray
Research, Tandem Computers to foster joint sales, joint development and joint marketing of
network computing.
VEN-TEL, INC. PRIVATE COMPANY, MODEM MANUFACTURER 6/7912/87

Director, Marketing & Sales, General Manager Personal Computer Group, Software Engineering
Manager, Software Engineer. Ran all sales and marketing for $30 million private company
reporting to CEO. Responsible for redirecting company products and channels from industrial
distribution to retail computer channels resulting in significant revenue growth over an extended.
Transitioned all marketing and sales force to the new model.
2017.
As an engineer and engineering manager, co-developed one of the first 212-A modems, and
defined and co-developed companys premier product lines including stand-alone products, as
well as one of the first PC based communications cards.
INDUSTRY:
Delivered Keynote Addresses on topics such as innovation & industry trends at: Telecosm 2000,
Interop Las Vegas 2000, 2002, 2003, 2006 (joint with CEO Avaya), Interop Tokyo 2004, Interop
Australia 2001.
EDUCATION:
MBA, Haas School of Business, UC Berkeley, 1982. Emphasis in Strategic Planning and
Finance.
BS, Electrical Engineering & Computer Science, Santa Clara University, 1980.
Directors College, Stanford Law School, 2011.
AWARDS:
Ernst & Young, Entrepreneur of the Year, 2001
Distinguished Engineering Alumni, Santa Clara University, 2005
Member Tau Beta Pi Engineering Honor Society, 1980
BOARDS & ASSOCIATIONS:

Chairman, Computer Engineering Department Industry Advisory Board, Santa Clara
University (2003-present).
Board of Directors, Barracuda Networks (6/2007-present). Private company; Security &
Data Protection Solutions for mid-market. Served as a member of the Office of the CEO
following the departure of founding CEO. Worked with co-founder/CMO and CFO to
keep company in growth mode and on-track while search for new CEO was being
executed (2/2012-10/2012). Member of Audit Committee, Chair of Nominating &
Governance committee.
Board of Directors, RGB Networks (4/2004-7/2013). Private venture backed company
focused on digital video processing for cable companies and carriers. Member of
compensation committee.
Board of Directors, SkyFire Labs (2007- 3/2013). Helped founders with initial strategy
& positioning, as well as with raising series A funding from Trinity, Matrix Partners. As
the companys only independent director I worked closely with founders and investors to
bring in a new CEO with deep marketing experience (2009). SkyFire acquired by Opera
Software for $151 million in March, 2013.
Member, Advisory Board, Blue Door Networks (2012-present). Private company;
Virginia based regional value added reseller to Enterprises and Federal Government.
###
Source: Gordon Stitt.
2017.
Exhibit 3
Nebula Promotional Material
Nebula One
Nebula One Server Stack
Source: Company website.
2017.
Exhibit 4
Private Cloud Startups and Initiatives
(As of November 2015)
Based on OpenStack
Mirantis
Nebula shut down
Piston acquired by Cisco
CloudScaling acquired by EMC
Metacloud acquired by Cisco
Morphlabs still operating
Based on other Technologies

OpenNebula Spanish project, small but doing reasonably well
Nimbula acquired by Oracle
Cloupia acquired by Cisco
Abiquo Spanish company, still operating
Zimory German company, still operating
Enomaly acquired by Virtustream
CloudStack (formerly Cloud.com, vmOps) acquired by Citrix
Eucalyptus Systems acquired by HP
Private cloud initiatives by large companies

VMware: vCloud
HP: CloudSystem, Helion OpenStack, Helion Eucalyptus
Cisco
Oracle
IBM
Red Hat
Source: Mark Leslie.
2017.

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NEBULA: THE FALL OF A COMPANY

However, sales soon began to slowcustomers seemed to struggle to understand Nebulas

Early Attempts at Hybrid Cloud Computing

Nebula One: The Cloud Computing Superhero

The road gets bumpy

So what do we do with it?

Product Cost and Quality

The combination of inefficient hardware configurations and extensive security implementation

Nebula: The Third Leg of the Cloud Stool

Market Timing Concerns

However, customerseven when they got it runningwerent expanding it fast

Team Locations: Here, There, Everywhere

Nebula leveraged an arsenal of communication technology to help foster conversation amongst

Lack of engineering process, high turnover, and open source culture

Source: Chris Kemp.

ACCELERATED GLOBAL TECHNOLOGY CORP. 10/076/09

EXTREME NETWORKS (NASDAQ:EXTR) 1996-2011

PRESIDENT & CEO, CO-FOUNDER (1996-2006)

NETWORK PERIPHERALS (NASDAQ:NPIX) MARCH, 1989 MAY 1995

SUN MICROSYSTEMS 1/888/89

VEN-TEL, INC. PRIVATE COMPANY, MODEM MANUFACTURER 6/7912/87

BOARDS & ASSOCIATIONS:

Source: Gordon Stitt.

Nebula One Server Stack

Source: Company website.

Based on other Technologies

Private cloud initiatives by large companies

Source: Mark Leslie.

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