Curator’s Note: Nigel Dutt, a successful software engineer-turned-entrepreneur, continues his history of today’s leading email archiving product–DF
In the first article, I covered the origins of Enterprise Vault up to the point where we had started up KVS at the very end of 1999, shipped Enterprise Vault V2.0 and moved into our own new premises at Winnersh Triangle, near Reading, early in 2000. This second article covers the subsequent growth of KVS up to its acquisition by Veritas in September 2004. I will talk about product and market growth during this time in the next article, coming soon.
Early Days at KVS
Unsurprisingly the customer pipeline that had been established at Compaq mostly evaporated as KVS started up. Instead of buying from a major multi-national, the prospective customers were being asked to put their faith in a small British-based start-up, and for the most part that wasn’t about to happen.
However, we did make some very early sales, the first being to Libertel in the Netherlands who purchased in our first week of operation. They were followed as early adopters by Freshfields in the UK, Clearstream in Luxemburg, Shaw Cable in Canada and Jackson National Life in the USA, which meant that we were instantly a multi-national!
These early sales were all via Compaq, except for Freshfields that was a Resolution Systems deal. In our first month we also partnered with Essential Computing who we knew well from our Digital days and they organised our KVS launch in London in December 1999. This event then led to more early business through Essential.
We set up a sales presence in the USA almost immediately and our US HQ was eventually established in Arlington (Texas) if for no other reason than that was where our North Americas manager lived. Over time several home-based regional offices were set up around North America, in particular in the New York area, reflecting the strong financial sector business we were doing there.
Having started with the ideal situation (ideal for engineers that is) of being an engineer-only company, we and our investors knew that we would need to hire a CEO and then develop the sales and marketing functions, and that started to happen after a few months when we hired Mike Hedger as CEO and he in turn recruited the people to start the various sales and other field organisations.
Over its almost five years of life, KVS grew rapidly and consistently in spite of the problems of the dot com crash of 2000-2002.
- Revenue: in our first full year, 2000, revenue was just over $1m, and it grew consistently to $23m in 2003 and just before acquisition in September 2004 the quarterly revenue was $10m, implying an annual run rate of $40m. Over this time, as expected, support, training and consultancy revenue all grew on top of license revenue and were contributing some 30% by 2004. The direct sales/indirect-sales-via-channel revenue split was always fairly consistent at 50/50.
- People: over its lifetime the company grew from just over 20 UK-based engineers to around 220 people covering multiple functions worldwide. Reading in England remained the HQ, where around half the company was based, including the entire engineering group. We had about 75 people in the USA and 35 in the various EMEA and Australian sales offices.
- Geographic Reach: as already mentioned, we sold in multiple countries from the start. We initially sold only English language versions of the product, but translated versions soon followed, with European first and later Asian languages. We aimed to have a US presence right away and the North American sales organisation was built up just behind the EMEA organisation and was around the same size. French and German offices were started early followed later by Australia, Netherlands and Denmark. The Australian office dealt with Asia/Pacific in general. Roughly speaking there was a 40%/55% revenue split between USA/Europe with around 5% from the rest of the world. Reflecting that it was our base country, UK always contributed disproportionately well.
- Funding: we started the company with around twenty five well paid people in nice new premises, so our cost run-rate was significant from Day One. It helped that our office furniture was loaned to us for free by Compaq (in fact it was our familiar old Digital office furniture that had recently been replaced by Compaq and which, like ourselves, was redundant) and all of our Compaq computers were sold to us as a job lot. We quickly learned about the delay between orders being closed and invoices being paid, so we went through a cash flow problem early on and a couple of us founders even paid the salary bill one month when the board “invited” us to buy up our stock options. Having started with an initial $1m loan from our original investor, Durlacher, we sought our first round of venture capital funding in the summer of 2000. In this first round we raised $8.8m and we had two further rounds in October 2001 ($14.5m) and August 2003 ($17m) for a total investment of around $42m. Our investors were a mix of European and American venture capitalists, which was a deliberate policy as we guessed that our likely future lay in American ownership or at least further investment.
Somewhat prosaically, one of the main underpinnings of KVS’s solid growth was “process”. A major advantage of the fact that we had initially developed the product within a large company rather than starting up with “two guys in a garage” was that we had taken a very formal process-oriented approach to software development and this approach was retained at KVS. For the same reason we also started with fully formed quality assurance and support functions who were a part of the development process.
Yes, it would often frustrate sales people (who were probably thinking “I could knock that feature up over the weekend”) but the engineering process did produce a reliable product built on solid foundations. Equally, and probably to the surprise of the engineers, the sales organisation also started from Day One with a ready built formal and quantifiable sales process. This produced the required sales results and allowed accurate insight into sales progress and pipeline forecasting, even if the idea was alien to some of our more red-blooded salesmen.
By 2003, given the fact that the email archiving market had properly arrived and its forecast growth was very strong, it was not a surprise that some big name companies were looking to get into the business either by building or buying.
Around this time some of KVS’s competitors were already being snapped up, and in mid 2003 we flirted with some would-be buyers who had approached us. In particular we talked in detail to Veritas, but they decided to build rather than buy, which was something that was very obvious to us when their technical team came over to see us; it felt much more like “deep digging” than “due diligence”. We received offers from other companies in 2003 but none were acceptable at that time.
However, by mid 2004, we were almost in the position of being last man standing of the successful specialist companies and we were now competing with the likes of HP, Zantaz and EMC, which of course made us very vulnerable both to the sheer scale of our new competitors and to their potential ability to price us out of the market.
So this time we took the initiative and appointed a bank (Credit Suisse) to start the formal process of looking for potential buyers. We pitched to several interested companies (including at least one VERY BIG company) and fairly quickly reached a draft agreement with Veritas. It turned out that although they had gone ahead with the “build” option, it hadn’t worked out for them and this time we met people who were genuinely interested in acquiring the product for the right reasons.
The whole process proceeded quite rapidly from draft agreement to the completion of the acquisition in September 2004 with a purchase price of $225m plus our selling costs being met by Veritas.
Conveniently Veritas’s UK headquarters were in the same town, Reading, as KVS so the logistics of the move were very easy for the UK people, but of course this wasn’t necessarily the case in other countries.
Not long after we had completely rebadged and repackaged the products to Veritas, we had to do it all over again as Symantec in turn acquired Veritas. This also explained in retrospect why Symantec declined to talk to us during our acquisition process. This further rebrand then resulted in Enterprise Vault’s fifth corporate logo, and is its longest lived one to date.
Apart from the product itself, what remained consistent through this story is the engineering team. Many of those who were there to found KVS (and who had already been working together for several years at Digital) are still working on the product, as are almost all the engineers who subsequently joined us and who were there at the time of the acquisition. Any engineering departures have tended to be due to retirement rather than moving elsewhere. This is also true of quite a few of the technical staff in the field who are still working with the product.
Some of these technical experts have even started their own companies (such as Vault Solutions) based on Enterprise Vault support, services and add-ons. The fact that our start-up, having kicked off a new market, eventually spun off its own start-ups must be some sort of maturity milestone in itself.
To be continued….