Part of my job is to meet with the investment community (venture capital, private equity, investment banking) and talk shop about the state of the eDiscovery market. Lately, the same question keeps coming up over and over: “is the eDiscovery market saturated?” Certainly, I can understand the question; the Symantec acquisition of Clearwell has created renewed interest in our market. Clearwell got a very nice multiple…in case you didn’t know, the term “nice multiple” does not escape the ears of the investment community. But, there seems to be a perception that the market is saturated and there are no ankle biters on the radar or sure winners on the way up. While there are definitely some over-capitalized vendors out there desperate for more cash or an acquisition, I believe this market is not even close to saturated, and I’ll offer an example of why.
I recently met with Sandra Serkes, CEO of Valora Technologies, Inc.. The two of us had not crossed paths yet, despite both having been in this industry for over a decade and both being based in the Boston area. I took a briefing with Sandra to learn more about Valora. Here’s a quick snapshot (and then I promise I’ll get to the point about lack of market saturation):
The company took some angel funding at the beginning and are otherwise independent. Valora started off developing technology for wireless industry (identifying strings of data in SMS texts…and then expanded that to any text). They moved into identifying documents (e.g. fax cover sheet, memo), and then added in recognition of things within the documents like names that could be authors. This was all in the paper/scanning world and became coding / auto-coding. The legal community didn’t want to buy the technology, but they wanted the results, so Valora became a service bureau.
Interesting company, right? Now, I’m by no means endorsing Valora Tech; I’ve spent about 2 hours total learning about their offering. I tell you about this company because it’s a great example of these smaller companies doing very interesting things, albeit in a “me too” kind of way (we’ve seen this story from many other companies in our market). And yet, I had never heard of the company, it’s making decent revenue (small company, and I can’t disclose revenues, but decent), and it’s seemingly not over-capitalized. After years of looking at over-capitalized software vendors that couldn’t make money and had problems getting acquired (or got acquired for low returns), it’s refreshing to see something different. And, I have to believe that if there is one in my back yard, there are likely many more world-wide just coming on the scene.
Long story short, I believe there are many companies that will enter the mainstream eDiscovery radar and will be worth a look. The market is not saturated and the winners far from determined. Wouldn’t the investment community be smart to find profitable companies with laser-focus versus investing $20 million into companies that have struggled to make $1 million in revenue (and trust me, there are several examples of this)?
Seen any interesting ankle biters out there? Let me know…we’ll track them.