With $25 million in new funding, Pivot3 focuses on future

In this economy, a $25 million round of investment funding isn't very common, yet that is just what video storage solutions company Pivot3 announced last week. Flipping back through the business pages in our industry, this is the sort of massive industry investment that only happens about once a year. In 2009, it was iControl Networks, a company focused on home systems management (security, heating, cooling, and more); iControl landed $23 million in July 2009. A year earlier, in July 2008, the big investment recipient was Milestone Systems. The "open platform" IP video management company received $27 million in funding from Index Ventures in that round, but Pivot3 also received $24 million that year in their "C" funding. It was more common to see investments of not quite half of those amounts. VideoIQ picked up $10 million in 2008, and VidSys picked up $10 million the previous year.

"The last big funding round of this magnitude [in the video surveillance space] was Milestone Systems," explained Lee Caswell, co-founder and chief marketing officer of Pivot3. "The money is going into open system solutions, and of course, Milestone is a perfect example of that. It looks like the IT market, where the money stopped going to proprietary companies and went [instead] to companies that specialize in the open systems like the software and infrastructure."

Indeed, the money tends to be landing directly in the laps of companies that can work with others. For Pivot3, their storage solutions work with a number of video surveillance management engines. Likewise, iControl's solutions tie together disparate systems, and the investors in iControl demonstrated the diversity of applications for the company's technology, with monies coming from ADT, GE and Cisco. VidSys, of course, is a physical security information management company whose technology is designed to integrate a variety of sensors and security information data feeds -- everything from access control to video surveillance to fire alarms.

While Pivot3 announced funding number was at $25 million, the funding round could finalize at $30 million since there are other investors actively looking, according to Caswell. He said he has confidence in Pivot3's placement in the industry, and says it helps that Pivot3 isn't just another storage vendor selling racked drive space.

"The worldwide storage market declined by about 12 percent last year, and it was because of a massive hold-back in [the purchase of] traditional products," Caswell said. "But we have a product suited for the surveillance space, and we tripled our revenues last year by serving only half of the market -- because we sold our solutions only in the U.S."

Pivot3's solution set is a line of products for providing storage and access to video surveillance recordings. The system embeds the server in with the storage and is designed to work with a number of video management systems. The video is made available over the network, and RAID protection means that hard disk failures don't equate to the loss of the video or total system downtime.

The money is going to three key uses. First, the company plans to double the sales and sales engineering support positions in the United States. They currently have approximately 10 persons work in those capacities, and the company hopes to be at 20 persons in those roles later this year.

Second, the money is going to international expansion. As Caswell candidly noted, they have been selling only in the United States, so some of that money is going overseas. On that note, the company has opened an office in Tokyo, bringing aboard four staff members with direct experience in the Asian market and storage offerings thanks to their backgrounds from EqualLogic (a storage company acquired by Dell in 2007). As part of the push to make a footprint in Asia, Pivot3 also hired Brad Armstrong as vice president of Asia and Pacific sales, and the company has just made its first Asian installation this week for a project in Korea.

Finally, Caswell said Pivot3 will use some of the money to expand their pool of demonstration equipment. That equipment will be heavily geared toward emerging markets such as Asia-Pacific and Dubai, where there aren't existing installations to show off to prospective customers and systems integrators.

Growing the company internationally means getting feet on the ground around the world, explained Caswell.

"I recently spoke with Lars Thinggaard [president and CEO of Milestone Systems] about how we could work together internationally, and he asked me a single question: 'Do you have local presence in these countries?'," said Caswell. "In the open systems market, companies have to be working together closely, even if it's behind the scenes, so you reduce the risk to integrators and customers. The responsibility is on the vendors to have the systems work together. So the question becomes whether there is someone on site to help integrators work through it."

Certainly international growth for Pivot3 presents a number of stepping stones that the company must accomplish -- placing sales and sales engineering staff overseas, developing relationships with systems integrators and getting those first installs complete. But at least for now, the company is already seeing positive signs in the U.S., where it has focused since its founding in 2003.

Caswell notes that the company has over 140 customers (as of February 2010), and they saw a 40 percent rate of re-purchase from 2008 customers who were expanding their video surveillance systems storage using Pivot3's "scale out" model that allows company to add more storage incrementally without ever having to make a huge up-front head-end purchase. The company has found acceptance in the so-called "Indian casinos" market -- those casinos operated by Native American tribes, but Caswell said they've also seen growth in the transportation market segment, especially in airports.

And with $25 million in the bank, Caswell said he is optimistic that he can take the company's current growth and help make the company an established player around the world – even beyond the world of video surveillance, since he feels the company's storage solutions have IT applications well beyond traditional video surveillance.

"The funding is set to get the company to profitability and cash-flow break-even," Caswell said. "This is the last funding round we expect on the road to something like an IPO."

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