Long before the Silicon Valley giant Oracle Corp. bought their employer, Endeca Technologies Inc. of Cambridge, for $1 billion, Steve Fredette and Aman Narang were planning an exit.
Endeca, which makes data-management software, had a reputation for attracting some of Boston’s brightest engineers and cultivating a scrappy, entrepreneurial culture, so it was only natural that Fredette and Narang were itching to try their hand at running their own company. The prospect of being swallowed up by Oracle — one of the world’s largest software companies, with more than 120,000 employees — seemed to seal their fate.
“I was thinking about starting a company the entire time I was there,” said Fredette, a software engineer. “When the Oracle acquisition happened, the logical step was to do the next thing.”
So before Oracle had finished absorbing Endeca after buying it in 2011, a start-up was taking shape at Fredette’s house, a company called Toast Inc., to sell software products to the restaurant industry. He and Narang are among the dozens of so-called Endecans who have left the company and gone on to launch their own start-ups — at least 10, mostly in the Boston area.
Like its much bigger predecessors, Digital Equipment Corp. and Lotus Development Corp., two seminal Boston companies acquired by competitors, Endeca is emerging as a fount of new business activity, churning out the next generation of entrepreneurs and helping to expand the region’s technology economy.
This is hardly a new phenomenon in the business world, nor is it limited to the technology sector. As far back as the early days of the automotive industry, bright employees left to start their own companies or used their newfound wealth to help others launch their own. That pattern of innovation and job creation continues today, with companies formed by former employees of Internet giants such as Google Inc., PayPal, and Yahoo Inc.
Even Silicon Valley can attribute its establishment as the center of technology to employees who formed spinoffs to compete against their old bosses.
There is the “Traitorous Eight,” former employees of Shockley Semiconductor Laboratory who went on to start such influential tech companies as Intel Corp. More famously, there is Xerox’s Palo Alto Research Center, or PARC, which arguably could claim paternity, directly or indirectly, for many of today’s technological achievements and corporate successes through the work of its former employees.
“If people hadn’t left Xerox and gone off and done their own things, we’d all be using dot-matrix printers today,” said Matthew Marx, an assistant professor of technological innovation at MIT’s Sloan School of Management.
Another way to describe such enterprises is as “shade tree” companies, said venture capitalist Kent Bennett, an early investor in Endeca. These are companies that attract smart, entrepreneurially minded workers and prepare them to make their own way in the business world.
“It’s about tutelage and mentorship, and being in an environment where you can be an entrepreneur for the first time,” said Bennett, a partner at Bessemer Venture Partners.
Those firms are also characterized by powerful, dynamic founders, such as Endeca’s former chief executive, Steve Papa, whom Bennett said “invests in people very consciously, and very heavily.”
Founded in 1999 by Papa, Peter Bell, and David Gourley, Endeca sold software for businesses and online retailers to analyze and sort through their data. Before it was acquired, the company raised $75 million in venture investment and had annual revenue of about $150 million and 500 employees.
Through Endeca’s 12-year span as an independent company, Papa is credited with maintaining an entrepreneurial culture and giving employees the leeway to pursue their ideas and work across many different areas of the business.
“It was a training ground to do your own start-up,” said Papa, who left Oracle in late 2012 and is working with a wireless networking company in Nashua, Parallel Wireless Inc., and helping many of his former employees with their own companies, by sitting on their boards or connecting them with investors and advisers.
For example, Jason Furtado, a former product manager at Endeca, has been networking exclusively within the tightknit community of former colleagues as he puts together his start-up, Shoobx Inc.
“You have a trusted network of people who are in a position to help you,” Furtado said.
And because of the pedigrees of many former Endecans, venture capitalists have closely tracked their next moves, hoping their ventures prove as successful as Endeca. For example, Bessemer teamed up with a second venture capital firm in February to provide $10 million to Infinio Systems Inc., a data-management company in Cambridge cofounded by a former employee of Endeca in 2011.
“It certainly gave us a lot of comfort that Papa could point to [Infinio] and say they were rock stars,” said Bessemer’s Bennett.
Another Endeca alum start-up, Salsify Inc., which makes product-marketing software, raised $8 million in September from two powerful Boston venture firms, Matrix Partners and North Bridge Venture Partners.
Even before Oracle arrived on the scene, some Endecans had branched out to start companies. They included Kyruus Inc., a data-management start-up for the health care industry, which has raised about $20 million, and Thanx Media Inc., of Chicago, founded by an early Endeca employee, Paul Matker.
But the $1 billion paid by Oracle made some Endeca employees wealthy, which certainly made it easier for them to decide to start companies. And more may follow. Venture capitalists report they are in contact with other Endecans who are contemplating leaving Oracle. Oracle declined to comment for this story.
And the diaspora might have been bigger had Endeca been on the West Coast, where the cycle of people leaving companies for start-ups happens much faster than in Massachusetts. One reason is that many large Boston companies have employees sign noncompete agreements, which can limit their ability to spin off a start-up. Noncompete agreements are not enforced in California.
Endeca employees signed noncompetes, but so far those who have started companies are not direct competitors. The new businesses range from social media to medical records companies.
“We did a good job of training people how to be entrepreneurs,” said Papa, so that they are not all trying to just “build the next Endeca.”
Correction: Because of a reporting error, an earlier version of this story about start-ups spinning off from Endeca Technologies Inc. mischaracterized the origins of Infinio Systems Inc. It was cofounded by a former employee of Endeca.