I'm a senior editor at Forbes covering venture capital and startups, especially in cloud and AI, out of New York. I edit the Midas List and Under 30 for VC, and created the Midas List Europe and Cloud 100 lists. I've written more than a dozen cover stories on business leaders including Marc Benioff, Patrick Collison and Melanie Perkins.
Mechanical Orchard has raised $24 million from Emergence Capital at a $95 million valuation after reaching $10 million in revenue and profitability in just over a year. For 30 years, Rob Mee helped big businesses modernize their software setup as founder of Pivotal Labs and later CEO of Pivotal Software.
Now, he’s back with a startup that’s looking to solve one problem he was never able to crack: weaning those companies off of ancient mainframe computers.by cloud giant VMware for $2.7 billion in 2019. But it’s also partially an admission that the “digital transformations” it promised to assist remain unfinished. According to a 2021 IBM report, 45 of the world’s 50 biggest banks and seven of its 10 largest retailers still depend on mainframes for key business functions from customer purchases to payroll. It took the Covid-19 pandemic, however, for Mee — a free agent following the sale — to decide to make another run at the problem. Alongside fellow former colleagues, he’d volunteered with state and local governments to move systems off of mainframes to more quickly track exposures and provide sick citizens with assistance. “That was the epiphany for me to do something that I’ve wanted to do for 25 years: apply a rigorous form of reverse engineering to these very old legacy systems,” Mee toldTheir solution, which rebuilt those systems in cloud-based applications and then managed and updated them for the government groups, turned into its own standalone business, called Ratio PBC. But Mee saw an opportunity to offer the same replication process to other sectors like banking and retail. With Mechanical Orchard, Mee is now taking advantage of two trends — the proliferation of open-source software and generative artificial intelligence — to pick up where he left off at Pivotal. The technology makes it easier and faster to make sense of billions of lines of archaic code on the mainframes themselves, he said; then, it speeds up the process for engineers at the startup to rewrite them with cleaner, newer code in the cloud. Mechanical Orchard can then manage and update those systems, or help customers build on top of them. “The arrival of generative AI brings the possibility that we’re going to have a second major productivity revolution in software development this century,” Mee said. “And that’s happening outside the mainframe. Folks with a fossilized substrate are going to miss out.”Just sixteen months old, Mechanical Orchard reached $10 million in revenue by the end of 2023 and closed the year profitable, the company said. It recently raised $24 million in a new Series A funding round led by Emergence Capital that valued the startup at $95 million, up from its $25 million valuation from a $5 million seed round raised in October 2022. Compared to AI model makers reaching multi-billion-dollar valuations on comparable revenue, Mechanical Orchard’s funding appears modest. One explanation: while it’s taking advantage of AI advances, it’s not building its own models, which are far costlier to produce and come with much more hype, said Emergence investor Jake Saper. Another: while Mee insisted Mechanical Orchard won’t be a software services business like Pivotal, there are still humans prominently involved. To build a “digital twin” of an on-premise system, Mechanical Orchard’s engineers start by identifying a system or job on a client’s mainframe and assessing it for potential improvements in a test environment. Next, they use its own fine-tuned AI models to identify a “steel thread,” a software engineering term for a narrow piece of functionality that slices through a much larger system, that can expose many of the potential traps or tangles in the legacy code. Only then does Mechanical Orchard start to create its replica, using a combination of human- and AI-generated code to write a new version of that thread and then its related code, branching out until the entire system’s data and functionality have been reproduced. That process is faster and cheaper than rebuilding a system by hand via an army of consulting engineers, Mee argued. And it produces more coherent foundational code than automated approaches, he added, that emulate billions of lines of legacy code like COBOL, the programming language popularized in the 1960s, in billions more of Java ‘spaghetti’ code. “No line of code gets written that hasn’t been tested,” Mee said. “I don’t believe there is a silver bullet. Software engineering got you into this problem over 50 years, and software engineering and computer science will get you out. But it’s not a push-button kind of thing.” At customer Omni Logistics, vice president of software engineering James Ryan said that Mechanical Orchard had already delivered results. “As a person responsible for managing our digital transformation across the globe, the prospect of modernizing our IT infrastructure often kept me up at night,” Ryan wrotein a statement. “Mechanical Orchard’s team made quick work of dissecting our legacy systems, core business processes, and charted a course for our future technology.” With the funding, Mechanical Orchard plans to hire more engineers and begin spending on marketing, Mee said. The large size of its market and customers, while an opportunity, also presents major challenges. Building a viable competitor to a major line of business of large, mature businesses like Accenture or VMware, the owner of Mee’s former business, will likely prove costly. Last June, Accenture announced plans to invest $3 billion over three years into its data and AI practice for efforts that include customers building AI applications off of IT environments using mainframes — an effort that Accenture said would lead it to double AI-focused headcount to 80,000 staff. By comparison, Mechanical Orchard employs about 70 people. And as Mechanical Orchard’s tech stack employs a mix of open-source software and tuned models from others, any success it demonstrates could encourage others to quickly build similar setups. At Emergence, Saper said that Mee’s legacy from Pivotal, including his reputation with IT executive potential customers and engineer potential hires, gives him a better shot than most to mount a challenge. “It would be super hard for someone else to do this,” Saper said. “You can’t go to a Fortune 500 company as an unproven person, a smart kid out of Stanford, and say, ‘trust me to re-code and host your inventory management system.’ That would be insane.”
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