KVS Puts New Combo on Vault

KVS Inc., trying to stave off rivals that are bulking up through acquisitions, is readying a new version of its archiving software, one that could help bring the startup to its next level.

KVS's Enterprise Vault 5, set for announcement next week, offers a single interface for all emails, file system documents, instant messages, and SharePoint documents. KVS CEO Mike Hedger says the product also comes with a new building-block approach, whereby customers buy the pieces they want rather than paying for a complete program and using only part of it.

The upgrade is noteworthy, since would-be investors have been eyeing KVS as a candidate to go public once the IPO market opens up (see Window of Opportunity). KVS has raised $37 million since its 1999 inception, with $17 million coming last September. Improving products is part of becoming profitable -- though it's not clear whether that's happened yet for KVS, and Hedger won't say.

He will say KVS's upgrade was driven in part by customers's need to comply with new regulations for data storage and retrieval, both in the U.S. and Europe. Hedger says KVSs 4.5 million user licenses are split about 50-50 between Europe and North America, but the American portion of the business is growing faster.

“We’re seeing two buying trends,” Hedger says. “In Europe, compliance is not as critical as in the United States. Customers buy our product for storage reduction. In America, it’s more driven by legal and financial compliance.”Still, there's no slowdown overseas: Hedger says compliance laws helped U.K.-based KVS more than double its installed base in 2003.

Compliance has also broadened the market for competition, and in the U.S. it's sparked a series of acquisitions over the last year. EMC Corp. (NYSE: EMC) bought Legato; Hewlett-Packard Co. (NYSE: HPQ) acquired Persist Technologies; Connected Corp. acquired Archive-IT; Zantaz Inc. bought Educom; and Open Text

purchased IXOS Software AG (Nasdaq: XOSY). (See EMC Gobbles Legato, HP Buys Archive Guys, Connected Gets Into Archive, Zantaz Makes Compliance Buy, and IXOS Reports Earnings Up.)

All of these moves were aimed at strengthened archiving products, and they provide a greater challenge for KVS. But Hedger waxes brash. “A lot of companies have merged in the past 12 months, probably because they weren’t successful on their own,” he says. “Our plan is to continue to expand our business, but we will not be burning cash.”

Indeed, it doesn’t sound as if KVS will go back for more funding, but Hedger says the company's not in as big a hurry to go public as people think.

“Companies go public for a couple of reasons,” he says. “Either they want more money to expand, or the shareholders would like to take some money out of the company. We will consider a float at some point, but clearly there’s no plan to do that in the short term. It’s better for us to be financially secure, and we are.”— Dave Raffo, Senior Editor, Byte and Switch