The foundation of what is now the largest venture capital firm in Orange County tracks back to Vinny Smith’s success in retrieving a chunk of Quest Software in a deal struck nearly a year after its $2.8 billion sale to Dell Inc.
The Business Journal confirmed last week that Smith’s Toba Capital paid $150 million—the largest deal in its 18-month existence—for a bundle of 10 companies that Smith and Quest had initially funded as part of the software maker’s venture arm.
Smith oversaw more than 70 acquisitions and investments at Quest. He joined the Aliso Viejo-based company as chairman and chief executive in 1997 and remained its leader until its sale to Dell in 2012. Many of the venture capital investments played a role in vaulting Quest, which had more than $800 million in annual sales, to the top ranks of Orange County’s software makers.
Quest became a prime takeover target by 2012, when numerous technology companies were looking for an entree into the lucrative enterprise software market.
Quest, now the lynchpin in Dell’s ongoing efforts to diversify product offerings beyond computers, makes software that manages and improves on other business products from Redmond, Wash.-based Microsoft Corp., Oracle Corp. in Redwood Shores, New York-based IBM Corp. and others.
Smith originally sought to take Quest private, and he recently acknowledged regrets that the effort led to a bidding war that ultimately cost him control of the company.
“It was a mistake,” Smith told a packed crowd gathered at the Eureka Building in Irvine late last month for a Tech Coast Venture Network event. “I didn’t intend to sell the company, and I was eventually outbid for it.”
Smith bid six times, with $100 million more each round, in hopes of retaining Quest. He ultimately lost out to Dell, the third-largest computer maker in the world.
“Maybe it was the right thing; it’s just not how we intended it to happen,” he said. “It was great for investors.”
Smith cashed out some $800 million after the deal closed and used a portion of that windfall to establish Toba. He named the new venture after the Toba Eruption, a super-volcanic blast some 70,000 years ago in what today is modern Indonesia that triggered a major environmental change some researchers believe ultimately strengthened human evolution.
Smith launched the venture firm in late 2012 with former colleagues at Quest on board and an eye on the “next generation of IT infrastructure.”
The Dell buy doubled Toba’s portfolio to 20 companies at the time, giving the firm more than $200 million in investment.
Smith said Toba’s portfolio now has more than $300 million in investments now.