KVS Collars $17M Round

Riding high on the recent wave of laws and regulations surrounding data storage and archiving, email archiving startup KVS Inc. has landed another $17 million in funding, bringing the total investment to date in the company to $37 million (see KVS Lands $17M in Funding).

Two new investors, Index Ventures and FTVentures, led the round, which is KVSs third. The Berkshire, U.K., company’s previous investors, which include Cazenove Private Equity, Greenaap Consulting Ltd., Lehman Brothers Venture Capital Group, and Mosaic Private Equity, also joined in on the round.

“We’re in a good space, we’ve been growing, so companies had been watching us,” says Mary Kay Roberto, KVS’s vice president and general manager for North America. She explains that the company had received many venture capital proposals, deciding to take Index Ventures and FTVentures up on their offers in late spring this year.

The main reason so many VC firms have been interested in pumping their money into KVS, Roberto says, is that the company so clearly addresses the growing regulatory demands for data retention and deletion. In an environment where the amount of corporate emails continues to skyrocket – expected to reach 60 billion per day by 2006, according to KVS – and new and reinforced laws and regulations like the Sarbanes-Oxley Act of 2002 and HIPAA compel companies to store emails and other documents for longer, that means huge market potential, she says.

Masha Khmargseva, an analyst with The Radicati Group Inc., agrees. “Regulatory compliance issues are becoming more and more important,” she says. “We project that this market will grow pretty fast over next four years.” The Radicati Group forecasts that revenues for email archiving vendors will reach $126 million by the end of this year, growing to $1 billion by 2007.KVS currently has close to 3 million user licenses and nearly 500 customers worldwide, including British Gas, Sony Corp. and Warner Music international. The company claims to have a direct presence in the U.K., North America, France, Germany, Australia, and Benelux, and has more than 90 partners operating in 15 different countries.

Impressive as this may sound, KVS faces its fair share of competition in the email archiving and regulatory compliance space: Educom TS Inc., iLumin Software Services Inc., and Legato Systems Inc. (Nasdaq: LGTO) are just some of the players.

Roberto, however, says the startup doesn’t worry too much about the competition. “This is a very active market that we’re in,” she says. “We have a very solid customer base… We are the market leader right now.”

Khmargseva agrees that KVS is an established player in this market. In addition, she says, the company has an edge over many competitors that are almost exclusively focused on the North American market. “They have a presence in both Europe and the U.S. They’ve been able to grab this other part of the market as well.”

Roberto won’t reveal when KVS might expect to reach breakeven, but she hinted that the date isn’t that far off. In fact, she says, the only reason KVS decided to accept the latest funding round was to be able stay in step with the burgeoning business opportunities it’s been seeing in the market. “In order to grow at an accelerated rate, we felt more comfortable having more funding. The new investment gives us more options.”KVS, which was founded in 1999, has about 125 employees today, and Roberto says the new cash injection will allow it to increase its headcount by 30 to 40 people over the next six months. The additions will mainly come in the company’s sales and marketing force, as well as in its U.K.-based engineering organization.

— Eugénie Larson, Senior Editor, Byte and Switch

For a comprehensive analysis of storage startup funding over the past 12 months, see the current Byte and Switch Insider report -- Venture Capital Survey -- which is available here