Deal Radar 2010: Egnyte

Egnyte is a software-as-a-service provider that offers an integrated, on-demand solution to the three most common technology challenges facing small businesses: data storage, information sharing, and computer backup. 

Based in Mountain View, California, Egnyte was founded in 2006 by Vineet Jain (CEO), Rajesh Ram (VP of product management), Amrit Jassal (CTO), and Kris Lahiri (VP of operations). Prior to Egnyte, Jain, Ram, and Jassal founded and built Valdero, which provided supply-chain software, in 2001. Valdero was acquired by One Network Enterprises in September 2005.

After Valdero, the founders took a small break and then banded together to do the next thing. One problem they thought about addressing was something they had faced in their previous work lives – easy but secure access to files, without changing the fundamental work behavior; that is, access right from their desktop. They were clear about one thing – that the sales cycle had to be the antithesis of the six- to nine-month cycle at Valdero. Instead, they wanted to build a solution which solved the problem at day zero. Egnyte was born as a result of some of this thinking.

Egnyte offers small and medium businesses (SMBs) a cloud file server solution that combines storage, collaboration, and backup into a single offering at one-eighth the cost of a traditional on-premise server infrastructure. In 2009, the company introduced a hybrid cloud file server solution that combines local storage and cloud storage. The advantage of this is that users can enjoy all the benefits of cloud computing but don’t have to rely on Internet access to retrieve files. In an interview with bts411, Jain said that he found that this was an important point for small business, many of which are not comfortable having their data in someone else’s servers. Further, users do not need an actual file server on-premise and can access files remotely without a virtual private network (VPN) connection. Finally, users can easily edit files locally, which is beneficial for any business that works on large files.

The founders say that several “naysayers” told them they were walking into a crowded market where at one end of the spectrum there was a large number of “consumer” class cloud solution providers and at the other end behemoths such as Microsoft’s Sharepoint and EMC. Egnyte felt that opportunity was right in the middle, with the SMBs that want quick-to-provision, easy-to-use services characteristic of a consumer-class solution combined with enterprise-class security, robustness and administrative controls but without the complexity and cost. In its product, positioning, and pricing, Egnyte has focused on this market. The field is a crowded one, and competitors include Carbonite, Mozy, Active Circle, BackupAgent, Asigra, DataDepositBox, and Vembu.

There are 9.2 million businesses in the United States and Canada with 1 to 99 employees. Sixty-four percent of these do not have a server. Those that do spend $2,500 for a file server, and this is the market that Egnyte is focused on. From a bottom-up analysis, if Egnyte were to have 5% of the market, it is looking at a business opportunity worth $360 million, with a TAM of $7 billion.

Egnyte says that its infrastructure solution is suitable for any business. The company targets SMBs with 1 to 1,000 users across an array of industries throughout the United States, Canada, Europe, and Asia. Egnyte’s current customers span consultants, financial services firms, marketing firms, Web design firms, accountants, real estate and mortgage firms, start-ups, medical & pharmaceutical companies, and numerous non-profit firms. Its top five fastest-growing vertical market segments are consulting, manufacturing, health care, banking, and non-profits.

The company has raised $7 million in funding thus far: $1 million in seed funding from Maples Investments (an early backer of Digg and Twitter) in June 2008, and a $6 million Series A led by Polaris Venture Partners and Maples Investments in July 2009. Egnyte has sufficient capital to fund its expansion needs for the foreseeable future and is not looking for any funding right now, unless there is a strategic opportunity. The next round will most likely be in 2011.

Revenues are still under $10 million, but Egnyte is experiencing healthy growth with MRR (monthly recurring revenue) growing by more than 20% month over month for the past three quarters. In 2009, the customer count grew 900% to reach the high five digits at the end of the year, with an average of 6.8 seats per customer. The company recently signed 125 small resellers, one major European telecom and one Fortune 100 customer. Data storage on Egnyte servers reached 212 terabytes by the end of 2009.

Egnyte currently has two data centers in the United States, and with increasing demand, is opening a third one outside the country in the second quarter of 2010. The other aspects of the growth strategy are to increase market penetration in North America, launch the solution in English-speaking countries outside the United States and subsequently support other languages to move into other territories. To complement its direct marketing efforts, Egnyte is addressing channel partnerships and affiliate marketing. As the business grows, it will hire more people to handle business development.

The company’s sole focus is hitting the revenue target for 2010; there are no plans for an exit.

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This segment is a part in the series : Deal Radar 2010