UPDATA ADDS VALIDATION SECURITY COMPANY CORESTREET TO PORTFOLIO
CoreStreet (www.corestreet.com), Updata Partners’ most recent security-focused investment, closed on February 23rd, and was an $8mm Series B round. The funds will help the company to expand new product development and drive growth in the international arena. The investment was co-led by POD holdings.
John Burton, a General Partner at Updata will join the CoreStreet board, and Tim Meyers, also a General Partner at Updata, will work closely with CoreStreet's board and management team in an advisory capacity. “I am excited about CoreStreet’s unique approach to the longstanding validation issue in certificate-based authentication, and by their stellar team, including founder Silvio Micali, a leading light in the industry”, said Meyers.
CoreStreet’s patented RealTime Credentials (RTC) infrastructure provides massively-scalable, high-assurance validation products for identity management and access control for physical and logical access to buildings, computer networks, applications and devices. The company has been in business since 2001 and is poised for dramatic growth through both direct sales and strategic partnerships within the validation and security sector. CoreStreet’s RTC can be set up in connected and disconnected environments without significant infrastructure costs. The RTC architecture, which separates security sensitive validation operations from certificate status delivery, is unique among industry validation providers and provides a single, centralized RTC authority that is protected from external network access. This RTC authority can publish validation information to hundreds of inexpensive and unsecured RTC Responders. “This technology works in both connected and disconnected environments, and will finally be able to bring digital validation security to the physical security world,” said Meyers of CoreStreet’s capabilities.
CoreStreet is Updata’s third investment from the UP II fund in security, joining e-Security and Object Video (see portfolio company news). Updata Capital, Updata’s affiliated M&A practice, also continues to actively focus on the security sector led by Senior VP Don More. Don has worked extensively in the security sector, both in validation and other areas. Updata Capital’s most recent security-focused transaction was a sell-side representation of N2H2, a web filtering solution, acquired by Secure Computing.
UPDATA ADDS TO STORAGE SOFTWARE EXPERTISE WITH $4M SOFTEK INVESTMENT
We are confident that the Softek investment, which closed in May, will extend Updata’s string of successful investments in the storage-management sector. Previous storage-management portfolio companies include The Kernel Group, which was sold to Veritas in January, 2002, and OTG which went public and was later sold to Legato. The investment in Softek, which was co-led by Columbia Capital, Investcorp and Needham Capital Partners, was part of a management-led buyout of Softek from Fujitsu. Fujitsu will continue as a strategic partner to Softek through multi-year OEM agreements for distribution of Softek’s products. John Burton, General Partner of Updata, and former CEO of Legent Software, said of the investment, “We have known the Softek management team and board members for years and are excited about the company’s growth prospects as a stand-alone entity.” Please look for an update on Softek (www.softek.com) in our fall newsletter.
In addition to being front-page news, Sarbanes- Oxley compliance has been at the top of the radar screen for private equity firms and corporate CxOs in the post-Enron era. With Sarbanes-Oxley enforcement in full effect and the continued high-profile prosecution of corporate CEOs, a slew of software vendors are jockeying for position in the market. These vendors vary in function from process-oriented vendors to storage and email management vendors. There are also several vendors that offer a general compliance tool. While the pie of compliance dollars is only getting larger, software vendors with offerings in the market must find a way to differentiate themselves from the pack and have their message heard in order to gain the attention of CEO, CIOs and Compliance officers.
Business Process Management (BPM) vendors have experienced significant and direct benefit from the increased attention to corporate compliance. According to Gartner, BPM software licenses grew between 10% and 15% in 2003 to approximately $1.1bn. Gartner also predicts that the worldwide BPM market will continue on its double-digit growth curve, while Meta Group estimates it could increase by as much as 20% by the end of the year. To capture this growth, it is no surprise that BPM vendors are customizing their platforms and marketing messages to target corporate compliance needs. Axentis, CommerceQuest, Fuego and HandySoft are all established BPM vendors who have developed specific compliance templates as a productized offering. Other vendors, such as FileNet, Staffware, Pegasystems, Metastorm and DST offer software that allows processes to be defined more explicitly but do not have a specific compliance template that they offer.
While the only IT-oriented process that the Sarbanes-Oxley law specifically mentions is electronic communication, the law has significant impact on financial reporting, which will open up ERP systems to regulatory scrutiny. ERP vendors such as Oracle and PeopleSoft have recognized this reality and have adjusted their product to incorporate more compliance mechanisms. Beyond the impact on ERP systems, the law requires significant attention to the process and mechanisms of record keeping, both in the form of emails and internal documents. Email management vendors such as Ilumen and KVS have grown revenues by marketing their email retention and management solutions as an integral piece of the Sarbanes-Oxley puzzle. Storage vendors such as EMC, HP and Storage-Tek are also touting their compliance capabilities through an Information Lifecycle management (ILM) framework. ILM helps companies define and comply with retention rules and is particularly relevant in industries like financial services. The recent EMC acquisition of Documentum illustrates how a traditional storage vendor can add document management capabilities to become a more comprehensive ILM solution and have a greater appeal to compliance-hungry executives.
While CxOs first reaction to all these options may be to increase the existing IT budget, several industry analysts urge caution and recommend trying to develop a compliance strategy with existing IT resources. A recent Aberdeen survey of senior executives stated that most plan to satisfy their Sarbanes-Oxley compliance needs without any additional IT investment. For companies with strong existing business processes in place, this is a viable option. However, companies without the process infrastructure already in place will need to make a significant investment of time, money and resources to bring their level of compliance to acceptable standards.
Whether utilizing existing systems or implementing new ones, strong compliance-focused IT infrastructure offers significant opportunity for ROI. In a recent report, industry analyst Gartner states that public companies with a ‘comprehensive compliance management architecture’ to support their Sarbanes-Oxley compliance efforts will save 50% annually compared to companies to do not have a similar architecture. The report goes on to say that companies can use their existing BPM systems as the foundation of a compliance strategy. While the carrot of cost savings makes IT-focused compliance high on the buying and priority list for corporate CxOs, the stick of non-compliance should be incentive enough to open purse strings for new systems or to make the investment in adapting existing systems. While the pie of compliance dollars is only getting larger, software vendors with offerings in the market must find a way to differentiate themselves from the pack and have their message heard in order to gain the attention of CEOs, CIOs and compliance officers.
Updata is always interested in talking to entrepreneurs, CEOs or their representatives about potential investment opportunities. Our focus is predominately on early growth-stage companies within the software and information services marketplace. We are particularly interested in companies with products in the following sectors: Security, Storage, Financial Technologies, Analytics, Healthcare IT, Retail IT, process outsourcing and subscription-based information services. Many of the opportunities that we look at have annual revenues in the range of $2mm to $20mm, however, we are also interested in reviewing both earlier stage opportunities as well as later stage spin-offs and recapitalizations. Our most important deal screening filters relate to unique and differentiated intellectual property, large potential market opportunity, experienced and coachable management teams and evidence of strong business momentum.
Updata Capital continues to provide M&A leadership and guidance within the software sector. For all other Updata Capital reports and newsletters, click here.
CoreStreet (
We are confident that the Softek investment, which closed in May, will extend Updata’s string of successful investments in the storage-management sector. Previous storage-management portfolio companies include The Kernel Group, which was sold to Veritas in January, 2002, and OTG which went public and was later sold to Legato. The investment in Softek, which was co-led by Columbia Capital, Investcorp and Needham Capital Partners, was part of a management-led buyout of Softek from Fujitsu. Fujitsu will continue as a strategic partner to Softek through multi-year OEM agreements for distribution of Softek’s products. John Burton, General Partner of Updata, and former CEO of Legent Software, said of the investment, “We have known the Softek management team and board members for years and are excited about the company’s growth prospects as a stand-alone entity.” Please look for an update on Softek (