Deal Radar 2008: Archer Technologies

Archer Technologies provides enterprise governance, risk and compliance (GRC) solutions through the Archer SmartSuite Framework. Made up of eight core products that customers use to build applications to automate their business processes, the SmartSuite is a platform for building on-demand applications and packaging them into solutions to solve business problems.

Archer CEO and president Jon Darbyshire, an industry expert in enterprise and IT GRC, founded Archer in 2000 when he saw a unique opportunity to help companies use technology to automate business processes relative to GRC. Darbyshire previously held senior positions within the Security and Risk Management departments of Ernst & Young and Price Waterhouse, where he counseled clients on audit and risk matters. He left E & Y and secured his first deal with EDS for $1.5 million, starting Archer from his home office. Darbyshire’s wife, Tara Darbyshire, is EVP of Sales and Business Development and was instrumental in securing early deals with EDS and within the financial services industry. His mother, CJ Archer, provided early financing and now serves as VP of operations. 

Darbyshire started Archer with the idea to create a comprehensive, flexible platform that would allow users to automate key processes and easily manage complex problems without the need for coding. 

The company was self-funded for the first eight years and last week announced a Series A round of $29 million from Bain Capital Ventures. They expect to use this investment to expand beyond their core risk and compliance business. Archer Technologies is based in Overland Park, Kansas. 
 
When Archer was founded, the GRC market did not exist. An early competitor was OpenPages, which focused on Sarbanes-Oxley (SOX) compliance. (See Related Readings for more on the 2002 Sarbanes-Oxley Act and its impact on corporate compliance.) Others focused on risk management, policy management or regulatory compliance, or IT governance. Archer was one of the first to focus on the IT GRC space. Today larger players such as CA, SAP and Oracle have entered the market. Other players include BWise and nCircle. 

Archer differentiates itself by offering solutions to address all the primary GRC functions and delivering solutions that allow clients to implement the most appropriate GRC program. These solutions include Policy, Threat, Asset, Risk, Business Continuity, Incident, Vendor and Compliance Management. Archer has also benefited from its involvement with Fortune 1000 clients at the executive level; the company attributes its early success to its targeting of the top 10 financial services firms and pursuit of top accounts.

Archer’s customer service and support include an onsite certification program, online training, phone/email/online support, WebEx troubleshooting sessions, Archer Health Checks and annual Client Relationship Overviews.  

The GRC market is growing exponentially, and AMR Research projects companies will spend around $35 billion on GRC solutions and services in 2008, a 7% increase over 2007. It forecasts smaller growth next year of 4.6%, which is still above the 2.9% growth forecast by IDC for overall tech spending. Archer’s primary target market was the financial services industry in the US and now includes several highly-regulated Fortune 1000 companies. One in four Fortune 100 companies are customers. Customers include ABN Amro, Ameritrade, the US Department of Justice, eBay, Target and NASA. Archer’s partners include Accenture, Acumen, Cisco, Microsoft, Qualys and Verisign. Archer sells directly to enterprises and has more than 105 customers worldwide with over six million users of the Archer SmartSuite Framework.

Archer works on a simple business model. It charges its clients $45,000 per year for core solution licenses. Additionally, clients pay an annual license fee for the Archer SmartSuite Framework, which starts at $8,000 for an unlimited number of users. Additional revenue comes from recurring licensing sales and professional services from clients representing diverse industries. No single client represented more than 4.2% of the company’s total booked revenue in 2007. This wide client base should help the company during this economic slowdown.

Darbyshire expects the company’s revenues to exceed $20 million this year. Archer has seen more than 324% sales growth over the last five years and has been cash flow positive since inception.

Among other awards, the CEO was recently named one of the “100 Most Influential People in Finance” by Treasury & Risk magazine. Archer is also included in Deloitte’s Technology Fast 500, Entrepreneur magazine’s Hot 500 and the Inc. 5,000 list.

As the global economic crises continues and governments reconsider regulation of the financial services industry in particular, companies are likely spend more on GRC, thereby making this one of the few industries which may actually benefit from the downturn. A recent survey by OpenPages (published on Investors.com) of 150 executives says that over 90% of Fortune 1000 companies plan to increase spending on GRC in the next year. According to Ben Nye, managing director of Bain Capital Ventures, Archer’s products can cut client costs for compliance and risk management by almost 90%.
     
Archer’s growth strategy includes further penetrating the Fortune 1000 companies, enhancing its current product portfolio and expanding globally. The company has no plans to be acquired and is not planning an IPO anytime soon largely due to the current economic situation. In any case, it is too small to go public, but certainly large and well-positioned enough to continue to build a very nice company.

I like two other things about this company: its Kansas City location, and the bootstrapped family business origins. The location proves that interesting technology businesses can be built outside of the technology hot spots of Silicon Valley, Seattle and Boston. And the success of the family business reinforces that couples often become very successful working together, adding to high profile examples such as Cisco Founders Len Bosack and Sandy Lerner, and networking industry pioneers Judy Estrin and Bill Carrico. VCs in Silicon Valley often pooh-pooh couples trying to start companies together, making big statements such as, “We never fund couples!” Well, these examples prove that such generalizations are just that: inane generalizations!

Related Readings:
Deal Radar 2008: ID Analytics
The Salesforce.com of Security
A CEO perspective on Sarbanes-Oxley

This segment is a part in the series : Deal Radar 2008