Venture capitalists were active in the e-discovery field this week, with FTV Capital pouring $32 million into Catalyst Repository Systems, and Sequoia Capital hiring former Clearwell Systems CEO Aaref Hilaly.
The news is just the latest in industry growth this year, following an active 2011 on the mergers and acquisitions front. So far in 2012, Epiq Systems bought De Novo Legal for $68 million, LexisNexis sold Applied Discovery to Siris Capital, Symantec bought LiveOffice for $115 million, and Guidance Software acquired CaseCentral in a $17 million deal that could expand to $50 million.
For the Catalyst investment, “It’s not a majority of the company, but it’s a big stake,” said CEO John Tredennick. “To be fair, a lot of that money went back to our early investors. They’re cashing out and getting a very large return on it.”
Catalyst, in Denver, recently began its expansion into Asia and will use part of the funding to bolster that effort Tredennick added. “We will head to Europe in due course,” he said.
FTV has a background in e-discovery. It previously invested in another e-discovery company, PSS Systems, acquired by IBM in October 2010. It also invested in KVS, which made email and file archiving software in the 1990s. That technology is now owned by Symantec after various acquisitions.
Tredennick ackknowledged other suitors. “As part of this process Oracle had expressed a lot of interest,” Trendennick said, confirming the widespread industry rumor. But, he said, “I wasn’t looking to be bought. I don’t see a need. I wasn’t in a hurry.”
In another development, Catalyst on Monday received official notice of the recently disclosed patent lawsuit against it and against several other legal technology companies, Tredennick said. The suits are being filed by a non-practicing company called Lone Star Document Management — dubbed a patent troll by many. As expected, the suit suggested Catalyst could buy a patent license, Trendennick noted. But instead, “I have since reached out to a number of the other victims in this suit. There’s great interest in forming a joint defense,” he said.
Meanwhile, technology venture capital giant Sequoia — with a portfolio of historic brands including 3Com, Apple, Atari, Google, NetApp, and Yahoo — confirmed that it hired Hilaly on April 9. Hilaly sold Clearwell to Symantec for $390 million in May 2011 and delivered CenterRun to Sun Microsystems for $66 million in July 2003, with Sequoia investing in both companies.
Conspicuously missing from Sequoia’s portfolio are legal technology companies other than Clearwell. Whether Hilaly will lead a charge into the field remains to be seen. He’ll focus on early-stage investments in “enterprise, internet, and mobile companies,” his web page states. “It was an engaging first day,” he Tweeted, though declining interviews this week.
Hilaly’s last day at Clearwell was March 30; the company is now run by Symantec veteran Brian Dye, vice president, information intelligence group, said spokesperson Hilary McQuaide said.
“It’s not surprising after any merger or acquisition that there are personnel changes and people make different plans,” noted David Horrigan, e-discovery analyst at The 451 Group. Obviously it’s not a surprise that Hilaly would join them, he said. Sequoia “may not have had a big presence in e-discovery, but they sure have had a big presence in Silicon Valley and high technology. They seem to be the go-to guys.”