Cisco is buying 400-employee startup ThousandEyes, which launched by using thrown-away computer servers and an unusual source of seed money

• Cisco plans to buy a startup called ThousandEyes, it announced on Thursday.
• The acquisition marks a natural fit for the network equipment giant: ThousandEyes offers a service that watched the whole internet to help companies avoid outages and service problems.
• ThousandEyes is used many big-name tech companies and said it had $100 million under contract for its 2020 fiscal year.
• Terms of the deal were not disclosed but ThousandEyes had an estimated valuation of $670 million a year ago. Bloomberg reported that the deal could be valued at "nearly" $1 billion.
• ThousandEyes is an unusual success story because its founders launched with almost no money and investors came after them, not the other way around, its founder and CEO once told us.

Cisco announced on Thursday that it plans to buy a 400-employee startup called ThousandEyes, though it didn't disclose the terms of the deal.

ThousandEyes is an interesting startup, that has made a name for itself with its service that watches pretty much the whole internet to help companies figure out the source of performance problems of websites and web-based apps. For instance, it can determine if an outage is the company's fault or that of its service providers.

While Cisco wouldn't say what it plans to pay, ThousandEyes has raised a total of about $111 million with an estimated valuation of $670 million as of February 2019, according to Pitchbook. Bloomberg previously reported that the deal could be valued at "nearly" $1 billion.

On March 5, right before COVID-19 caused much of America to start working from home, ThousandEyes reported that it had $100 million worth of revenue under contract for its 2020 fiscal year — representing growth of almost 80% year-over-year. Because ThousandEyes is a private company, we have no insight into whether the COVID-19 crises helped or hurt its business, but it is the kind of service that should be in more demand because of the economic crisis; not less so. And some of its customers include companies like Microsoft, Slack, Box, Okta, Comcast and other big names who are booming in these troubled times.

ThousandEyes founder CEO Mohit Lad says in a blog post that its discussions with Cisco had been in the works over the past year, as the startup looked to coordinate with Cisco and another of its units, AppDynamics, more closely. ThousandEyes has not held significant layoffs in the wake of the crisis, according to Layoff.fyi, and still had a few dozen jobs open, so there's no indication that this was a fire sale.

In fact, the two companies held a call for media and analysts discussing the deal.

ThousandEyes is a natural fit for Cisco, which plans to tuck the company into its Enterprise Networking and Cloud and AppDynamics cloud services. It comes as Cisco continues to build out an subscription software empire to go alongside its enterprise network hardware one.

An unusual success story

So, while we don't know for sure whether or not the acquisition will prove a financial windfall for the founders of ThousandEyes, we do know that theirs is an unusual success story, founded under atypical circumstances for Silicon Valley.

The company started up in 2010 by founders Mohit Lad and Ricardo Oliveira, colleagues from the UCLA computer science department, who had an idea of how to track down and avoid pesky web performance problems. Their idea was to watch the whole internet to make sure that problems in one part of the global network didn't cause trouble for the businesses that rely on it.

In order to see the whole internet and measure it very precisely, they couldn't be using the very same cloud computing services they were monitoring, like Amazon Web Services. They had to have control over their own computers and equipment, and so they had to have their own data center. But building a data center is pricey, and they didn't have any money — but they also didn't want to spend their time trying to find investors.

So they landed a $150,000 grant from the National Science Foundation, and scavenged free computer servers out of the recycle bins from big corporations. The grant was doled out in small portions, forcing them to show progress with their work. Their original customer acquisition plan was to watch people complaining on Twitter about outages, then approach those companies with the data on the cause and how to fix it.

They landed some big customers and learned to run a cash-savvy businesses and VCs heard about them and came knocking, Lad told Business Insider back in 2016, when the company had 130 employees and was doubling revenue annually.

Cisco says that the purchase will close sometime before the first quarter of its fiscal year 2021. Cisco is currently in the fourth quarter of its fiscal 2020. Its Q1 FY21 runs from August through October.

Are you a Cisco insider with insight to share? Contact Julie Bort via email at jbort@businessinsider.com or on encrypted chat app Signal at (970) 430-6112 (no PR inquiries, please). Open DMs on Twitter @Julie188.

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