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From Initial Investment to IPO and Cloud Infrastructure in About a Year

Fully adopting cloud helped a mortgage insurance startup leap from initial investment to full-service business in less than two years.

Wrap your head around this number: $500 million.

Now, think about it as the entry point for a startup company. Does it seem staggeringly high? It should, given that the startup stake for a new business generally falls somewhere between $30,000 and $50,000, according to most statistics.

But if you want to jump into the mortgage insurance industry, $500 million is the minimum capital required to insure the federal housing giants, Fannie Mae and Freddie Mac, the primary beneficiaries of private mortgage insurance.

Although it’s a steep figure, it didn’t dissuade a group of California business executives from deciding in 2011 that the time was right to enter the private mortgage insurance business, which had been buffeted by the economic recession’s toll on the housing market.

Given the high capital requirement and other barriers to entry, the industry typically has seven or eight companies competing with one another at any time. So, as the economy began its slow recovery, National MI was born.

In 2012, NMI Holdings, the parent company of National MI, raised $550 million in private capital for the new venture. In April of 2013, the Emeryville, Calif., company began writing business, and in November, completed its initial public offering.

“If you think about initial funding in early 2012 and IPO in late 2013, we went from PowerPoint to public in less than 700 days,” says Stan Pachura, executive vice president and CIO of the company.

But cash wasn’t the only hurdle. Technology also played a significant role, Pachura says.

“Because the mortgage insurance industry is highly specialized, there aren’t off-the-shelf packages to run a great mortgage insurance business,” he says. “So building out the technology is another hurdle in getting a mortgage insurance company off the ground.”

Given the aggressive timeline, the IT team weighed its options and went all in on cloud — end to end.

“We talked about lessons learned from our previous experiences,” says Darrick Wilson, the company’s vice president of information security and enterprise technology. “We had experience running data centers, and we knew that was not the right approach for National MI. Cloud was the best way to keep costs low and scale rapidly. So we started from a premise of ‘cloud first,’ and that defined our path.”

500

The number of virtual machines National MI has distributed across a mix of public and private clouds

Go Big, or Go Home

When it comes to startups and small and medium-sized businesses (SMBs), National MI is far from alone in embracing a sweeping cloud strategy, says Greg Schulz, founder and senior advisory analyst, Server and StorageIO Group. Some established SMBs do take a hybrid approach, mixing and matching traditional on-premises services with private and public cloud offerings.

The trend is for SMBs to go all in, and not just to cut cost,” Schulz says. “They’re doing so to implement resilient information and data infrastructures that can tolerate disruptions that might knock their competitors offline.”

That frame of mind played into National MI’s initial thinking about implementing a cloud solution. Ultimately, three factors drove the cloud strategy that Wilson and Pachura fleshed out for the startup: speed to market, security, and agility and scalability.

For National MI, getting started so quickly required developing a relationship with a technology partner. It turned to CDW to both finesse its cloud strategy as well as provide a shared hosting environment.

Today, the company has five environments in the CDW cloud ecosystem — two in public clouds and three in private clouds.

“Time was of the essence. There just wasn’t enough time to build out the staff, skills, resources, data centers and real estate that would be required to do it in a more traditional on-premises manner,” Pachura says.

By embracing a cloud solution, Wilson says, the IT infrastructure can “grow as our business grows and eliminates some unnecessary costs.” His team can spin up systems and deploy test and development environments as business needs arise, without having to navigate the hurdles of a procurement process.

40TB

National MI’s cloud-based storage capacity, compared with 6TB onsite

Avoiding a Home Invasion

“Beyond scalability and elasticity of storage space capacity, there is the resiliency and durability of cloud and how it will survive, not to mention being safe, secure and compliant with any applicable regulations,” Schulz says.

Because National MI works in an industry that requires the processing of financial and personally identifiable information to conduct business, security topped the concerns Wilson and Pachura knew had to be addressed in any IT approach the company might take.

Security doesn’t naturally exist in any technology, whether in a business’s own data center or a cloud provider’s, Wilson says. “You have to be able to manage it yourself,” he says. “You need to guide your people and guide the environment to be secure.”

To ensure that its IT services and data would be safeguarded within the CDW environments, the team went back to the fundamentals of information security. Wilson explained that he and his staff defined the multiple layers that would be needed for the business and then analyzed those needs against an on-premises solution versus the cloud.

“We wouldn’t have made the decision to go all cloud unless we knew that we could secure the data as much as we are able to in our on-premises environment,” he adds. By going with a mature cloud provider, National MI was able to open for business and provide lenders with a valued standard for financial businesses: SSAE 16 certification for the CDW data centers hosting its cloud environments. “We didn’t have to build out a data center and take the time to obtain an SSAE 16 certification for the facility,” Wilson points out.

Given the time frame and resources available, Pachura adds, “what we could acquire through the cloud was much more secure and robust than we could have set up ourselves.”

What’s more, the business was able to have access to a completely redundant environment and facilitate business continuity from the start.

Change as the New Normal

The ability to make adjustments to the IT environment swiftly — whether in response to customer needs, internal business directives or the competitive environment — reinforces cloud’s allure to National MI’s tech chiefs.

“A big part of the attraction for me was the ability to start things from scratch and do things the way I always wanted to do them,” Pachura says. With a cloud-based infrastructure, the company’s IT staff can focus on serving its customers and developing specialized capabilities for the business, while CDW manages the technology core, he says.

John Lee
Nov 25 2014 Spice IT

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