New Investments: Nimaya, HotGigs, OrderMotion, CMWare
Updata has made four new investments over the last six months across a variety of sectors including SOA (service oriented architecture), human capital management, e-commerce and mobile content. The investments reflect our continued interest in 1) on-demand software models that leverage the internet as a primary delivery channel 2) SOA that lowers the overall costs of deploying and using enterprise software; 3) enterprise-level solutions for small and medium-sized businesses (SMBs); and 4) mobile applications.
Nimaya – Fairfax, Virginia; May 25, 2006 – Updata completed Series A funding of $3 million with Nimaya Inc., a leading provider of revenue maximization applications. Using their CustomerGrid™ application, Nimaya integrates multiple data sources and applications within an enterprise in real-time to provide a complete, correct and current view of the customer. The company will use the funding to expand its application suite focused on enabling telecommunications, financial services, hospitality and technology organizations to better serve customers without having to consolidate data into one repository. Unlike traditional ‘hub and spoke’ integration platforms, CustomerGrid is a highly distributed, service-oriented architecture (SOA) that integrates systems across divisions, functions, and the extended enterprise. As part of the financing, Tim Meyers and Carter Griffin have joined the company’s board.
HotGigs – Chanhassen, Minnesota; July 17, 2006 – Updata completed Series A funding of $5.3 million with HotGigs, provider of revolutionary web-based staffing solutions that help companies manage their staffing supply chain. HotGigs.com’s online contract talent marketplace provides a faster and easier way for companies, consulting and staffing firms to source full-time and contract talent from a highly fragmented network of independent and freelance consultants. The company will use the funding to expand its management team, scale its employee base, develop new product/service offerings and launch significant national sales, support and marketing efforts. As part of the financing, Rich Erickson and Conor Mullett have joined the company’s board.
OrderMotion – New York, NY; August 10, 2006 – Updata led a Series B round of funding of $8.5 million for Order Motion, an on-demand provider of order management software for e-commerce vendors. Using Order Motion’s software, small and medium sized merchants can more effectively manage their back office functions including order capture, inventory management, and payment processing. Order Motion also offers tools to more effectively manage CRM and other marketing functions for these small merchants. Spun-out of CommercialWare earlier this year, the company had received a series A investment from Capital Resource Partners who also participated in the recent financing. With over 200 customers to date, Order Motion will use the funds to continue growing sales and marketing and to scale their customer service infrastructure. As a result of the financing, Conor Mullett joined the Company’s board.
CMWare – Princeton, NJ; September 12, 2006 – Updata led Series A financing for CMWare, Inc., a leading provider of PC place-shifting solutions for mobile carriers. The company will use the funding to accelerate deployment of its myMobileMedia™ service, the first turnkey PC place-shifting solution for mobile carriers that reliably streams digital media from subscribers' PCs to their mobile devices in any format, including music files, pictures and DRM-protected content. Commensurate with the funding, Tim Meyers and Carter Griffin of Updata Partners have joined the board of directors.
Portfolio Company Exit: e-Security
We were pleased by the April acquisition of portfolio company e-Security by Novell. The transaction, valued at $72 million, was a positive exit for Updata and other investors. The deal combines the benefits of Novell's identity and systems management expertise with e-Security's real-time event monitoring, response and reporting capabilities. With the addition of e-Security's award-winning product, Sentinel 5, Novell can now deliver a solution that provides a real-time, holistic view of security and compliance activities, while helping customers monitor, report, and respond automatically to network events across the enterprise.
For Updata Partners, the exit represents the firm’s first security software exit and continues the string of positive liquidity event for Updata II, raised in 2000. “We are thrilled for the e-Security team, all of whom have done a great job executing the business plan and putting the company in a position of leadership in the security event management space,” stated Barry Goldsmith, General Partner at Updata Partners and former e-Security board member.
"Novell's acquisition of e-Security demonstrates our commitment to this growing market, leveraging a core element of our business to deliver robust security and compliance solutions that meet our customers' needs in an increasingly regulated business environment," said Jack Messman, chairman and CEO of Novell. Reed Harrison, founder and chief technology officer of e-Security, echoed Harrison’s sentiments, "Combining Novell's expertise in identity management with our real-time security event monitoring and reporting capabilities will create an unmatched solution. As a member of the Novell family, we can now help redefine how customers think about security and compliance."
One of the fundamental changes occurring in the software world over the last ten years has been the shift to open source (OS) applications. Beginning with the emergence of Red Hat and Apache during the late 1990s, open source has continued to evolve and gain broader acceptance in the enterprise. While total dollars invested in open source software has dropped considerably since its peak of over $400 million in 1999, it continues to be an area of significant investment for venture firms and companies alike.
According to LinuxWorld, in 2004 and 2005, close to $100 million of venture capital was invested in open source companies like JBoss and SugarCRM. While these companies have stuck close to the original services-based revenue model created by OS pioneers Red Hat and Linuxcare, they represent a progression up the IT stack. Whereas Red Hat is focused on the core Linux operating system, SugarCRM reaches all the way to the application level. Jboss, an open source middleware provider purchased by RedHat earlier this year for approximately $350 million, sits between the application and operating system levels. Other firms like Enterprise DB, Ingres and MySQL are focused on the database segment.
In addition to generating some initial returns for venture firms, all this investment in open source has created a rich open source IT environment, commonly dubbed LAMP. LAMP is an acronym that refers to a common set of open source programs used to create web sites:
Linux, the operating system Apache, the web server MySQL, the database Perl/Python/PHP, the scripting languages.
Over the last several years, LAMP has become one of the most popular alternative development frameworks to proprietary environments such as Microsoft’s .Net and Java. LAMP is especially popular for applications that run on the Internet. As an indication of how use of the stack has grown, according to The PHP group, today almost 20 million Web domains run PHP versus less than 1 million in 2000.
Amidst all this growth, service-based models remain a staple of the open source business plan. Spikesource, which sells a stack of open source components via a subscription model, is an example of a new wave of service-driven business models that have emerged. Rather than focusing on a single piece of the LAMP stack, such as the operating system, Spikesource manages all components and provides updates for each piece of the stack to its customers.
In addition to services-focused businesses like Spikesource, several companies are coming to market with products that mix proprietary code with open source code. Sendmail, which has built proprietary add-ins around Sendmail.org’s open source Mail Transfer Agent (MTA), is a good example of such a firm. Additionally, we have seen numerous open source communities, such as Sourceforge gaining prominence both amongst developers and investors. Owned by once-highflying Linux star VA software, Sourceforge makes money through monthly subscriptions to the Website as well as advertising revenue. Another interesting twist on the open source movement are companies like BlackDuck Software that provides code auditing to ensure IP compliance for companies using open source code. While based entirely on a proprietary code base, BlackDuck has also benefited from increased OS adoption within the enterprise.
Despite the preponderance of open source businesses that have emerged in the last five years, new opportunities continue to develop. For any open source company to succeed, we believe certain fundamental market characteristics should exist. Primarily, the underlying technology needs to be a commodity product with a clear set of basic feature requirements. Additionally, a robust community of developers — between 50,000 and 100,000 -- needs to exist around the code base. Finally the open source alternative must have a lower price point than its proprietary competition. If these three characteristics exist, and there is a large enough market opportunity, open source models are likely to emerge. One such space where we have seen open source begin to take hold is wireless. While the wireless arena has recently been dominated by large vendors such as RIM and Good Technology, Funambol’s mobile application server is an emerging open source alternative for carriers and enterprises. Another area gaining attention is networking. In this space, vendors like Vyatta are looking to provide a low cost and more flexible networking alternative to companies like Cisco Systems and Juniper Networks.
Whether these companies are successful in taking a bite out of the incumbent’s market share remains to be seen. If they are, venture capital backers will surely stand to benefit. Regardless of which specific companies succeed in the long-run, though, the most important outcome of the open source movement may be the access to low-cost versions of enterprise-grade applications that it has created. As the growth in PHP discussed above indicates, the open source movement and the LAMP stack have become a staple of the Internet. Whether or not investors are able to profit directly from investments in OS companies, the low-cost development framework provided by LAMP is likely to benefit investors and consumers for years to come.
As Updata Partners continues to grow, we are very pleased to welcome two new team members that will play important leadership roles in current and future funds.
Greg Olear, VP Finance: Greg Olear was hired as Updata’s first Vice President, Finance in May of 2006 and brings a wealth of financial and operating experience. Greg comes to Updata Partners from Digital 5, a provider of software for streaming multimedia content, where he served as Vice President of Finance. He brings to Updata close to twenty years of experience in finance and accounting throughout his career with earlier roles at Sarnoff Corporation and KPMG LLP.
Greg graduated from Rider University with a Bachelor of Science in commerce and is a licensed Certified Public Accountant in the state of New Jersey. He is based in Updata’s New Jersey office.
Amber Gray, Associate: Amber Gray joined Updata as an Associate in May of 2006. As a former Product Marketing Manager at Informatica Corporation, Amber’s strong operating experience will help Updata in identifying new investments and working with existing portfolio companies on market-based initiatives. To date, Amber has played a key role in working with portfolio companies Appfluent and Nimaya.
Amber started her Updata career as an intern last summer through her participation in The Batten Institute’s VC Bootcamp. Just prior to joining Updata full time, she completed an MBA from the University of Virginia’s Darden School of Business where she was awarded a Genovese Fellowship for academic performance and dedication to entrepreneurship. She is based in Updata’s Virginia office.
As recently reported in InformationWeek, according to Capital IQ, a research division of Standard & Poor's, there were more than 450 mergers and acquisitions during the second quarter of 2006 in IT services and enterprise software, security, and storage. M&A transactions among IT companies in the first half of 2006 grew by more than 15 percent over 2005.
Updata Capital is a leading advisor to mid-market information technology companies, completing 13 transactions so far in 2006. Some recent transactions include:
SurfControl plc (London:SRF), a leading global provider of Internet security solutions acquired one of Europe’s fastest growing on-demand security services companies, BlackSpider Technologies Ltd (“BlackSpider”).
MDY's record management technology complements CA's email management, file management and discovery solutions, enabling customers to fulfill compliance policies and discovery demands—without incurring data migration costs or executing large-scale infrastructure changes.
Firstlogic, Inc., a global provider of enterprise data quality software and services, was acquired by Business Objects (Nasdaq: BOBJ), to provide Business Objects customers with best-of-breed data quality solutions, and is part of the company's long-term strategy to offer customers a trusted data foundation for enterprise information management (EIM).
Nimaya – Fairfax, Virginia; May 25, 2006 – Updata completed Series A funding of $3 million with Nimaya Inc., a leading provider of revenue maximization applications. Using their CustomerGrid™ application, Nimaya integrates multiple data sources and applications within an enterprise in real-time to provide a complete, correct and current view of the customer. The company will use the funding to expand its application suite focused on enabling telecommunications, financial services, hospitality and technology organizations to better serve customers without having to consolidate data into one repository. Unlike traditional ‘hub and spoke’ integration platforms, CustomerGrid is a highly distributed, service-oriented architecture (SOA) that integrates systems across divisions, functions, and the extended enterprise. As part of the financing, Tim Meyers and Carter Griffin have joined the company’s board. 
HotGigs – Chanhassen, Minnesota; July 17, 2006 – Updata completed Series A funding of $5.3 million with HotGigs, provider of revolutionary web-based staffing solutions that help companies manage their staffing supply chain. HotGigs.com’s online contract talent marketplace provides a faster and easier way for companies, consulting and staffing firms to source full-time and contract talent from a highly fragmented network of independent and freelance consultants. The company will use the funding to expand its management team, scale its employee base, develop new product/service offerings and launch significant national sales, support and marketing efforts. As part of the financing, Rich Erickson and Conor Mullett have joined the company’s board.
OrderMotion – New York, NY; August 10, 2006 – Updata led a Series B round of funding of $8.5 million for Order Motion, an on-demand provider of order management software for e-commerce vendors. Using Order Motion’s software, small and medium sized merchants can more effectively manage their back office functions including order capture, inventory management, and payment processing. Order Motion also offers tools to more effectively manage CRM and other marketing functions for these small merchants. Spun-out of CommercialWare earlier this year, the company had received a series A investment from Capital Resource Partners who also participated in the recent financing. With over 200 customers to date, Order Motion will use the funds to continue growing sales and marketing and to scale their customer service infrastructure. As a result of the financing, Conor Mullett joined the Company’s board.
CMWare – Princeton, NJ; September 12, 2006 – Updata led Series A financing for CMWare, Inc., a leading provider of PC place-shifting solutions for mobile carriers. The company will use the funding to accelerate deployment of its myMobileMedia™ service, the first turnkey PC place-shifting solution for mobile carriers that reliably streams digital media from subscribers' PCs to their mobile devices in any format, including music files, pictures and DRM-protected content. Commensurate with the funding, Tim Meyers and Carter Griffin of Updata Partners have joined the board of directors.
We were pleased by the April acquisition of portfolio company e-Security by Novell. The transaction, valued at $72 million, was a positive exit for Updata and other investors. The deal combines the benefits of Novell's identity and systems management expertise with e-Security's real-time event monitoring, response and reporting capabilities. With the addition of e-Security's award-winning product, Sentinel 5, Novell can now deliver a solution that provides a real-time, holistic view of security and compliance activities, while helping customers monitor, report, and respond automatically to network events across the enterprise. 
One of the fundamental changes occurring in the software world over the last ten years has been the shift to open source (OS) applications. Beginning with the emergence of Red Hat and Apache during the late 1990s, open source has continued to evolve and gain broader acceptance in the enterprise. While total dollars invested in open source software has dropped considerably since its peak of over $400 million in 1999, it continues to be an area of significant investment for venture firms and companies alike. 
Greg Olear was hired as Updata’s first Vice President, Finance in May of 2006 and brings a wealth of financial and operating experience. Greg comes to Updata Partners from Digital 5, a provider of software for streaming multimedia content, where he served as Vice President of Finance. He brings to Updata close to twenty years of experience in finance and accounting throughout his career with earlier roles at Sarnoff Corporation and KPMG LLP. 
Amber Gray joined Updata as an Associate in May of 2006. As a former Product Marketing Manager at Informatica Corporation, Amber’s strong operating experience will help Updata in identifying new investments and working with existing portfolio companies on market-based initiatives. To date, Amber has played a key role in working with portfolio companies Appfluent and Nimaya. 
MDY's record management technology complements CA's email management, file management and discovery solutions, enabling customers to fulfill compliance policies and discovery demands—without incurring data migration costs or executing large-scale infrastructure changes. 
Firstlogic, Inc., a global provider of enterprise data quality software and services, was acquired by Business Objects (Nasdaq: BOBJ), to provide Business Objects customers with best-of-breed data quality solutions, and is part of the company's long-term strategy to offer customers a trusted data foundation for enterprise information management (EIM).