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Will SAP Acquire Egnyte?

Posted on Thursday, Jul 12th 2018

According to a MarketsandMarkets research report published earlier this year, the Enterprise Collaboration Market is estimated to grow 12% annually over the next few years to $59.86 billion by 2023 from $34.57 billion this year.

Egnyte’s Financials

Mountain View-based Egnyte was founded in 2008 by entrepreneurs Vineet Jain, Rajesh Ram, and Kris Lahiri. The idea behind Egnyte came to the founders when they accidentally built a cloud-based offering while replacing a physical file server with a multi-tenanted and hosted server. Today, Egnyte offers organizations a hybrid version of a secure server offering. The hybrid model allows organizations to choose the documents they want to retain on-premise and the ones they want to store on the cloud.

Egnyte is still privately held and does not disclose detailed financials. Analysts estimate that the company recorded revenues of $60 million in 2017. Egnyte is targeting revenues of $100 million by 2019. Unlike other start-ups, Egnyte has been profitable for a while. It recorded cash flow breakeven in the second half of 2016, a minor net profit in the last quarter of 2016.

Egnyte has been venture funded so far and has raised $62.5 million in funding from investors including Kleiner Perkins Caufield & Byers, Google Ventures, Polaris Partners, Northgate Capital, CenturyLink, Seagate Technology, and FLOODGATE. Its last round of funding was held in December 2013 when it raised $29.5 million at an undisclosed valuation. The market was expecting Egnyte to list last year, but the company hasn’t announced any plans of doing so. Last year, it had announced that it did not “need to raise money”.

Egnyte’s Expanding Offerings

Over the past few years, Egnyte has diversified its offerings beyond data storage. Last year, it added a document protection product called Egnyte Protect. In keeping with the compliance requirements, it recently announced a new GDPR policy to add to Egnyte Protect. The new feature gives businesses the ability to identify GDPR-sensitive content on a real-time basis. Egnyte Protect uses machine learning capabilities to identify the most likely areas where GDPR-sensitive information could be located. Using that information, Egnyte’s customers will be able to enforce GDPR policy across Egnyte Connect, SharePoint, Windows File Servers, and OneDrive repositories using a single interface. Their administrators will be able to move or delete files, or revoke access to them from within the Egnyte Protect interface to maintain compliance.

Last year, Egnyte also entered into a tie-up with SAP to expand the reach of its product. As part of the agreement, SAP will add Egnyte powered document management capabilities to the SAP Cloud Software suite. In return, Egnyte will get access to the massive trove of customers that SAP supports. Prior to the agreement, SAP offered a document management tool that customers could install on their own servers. But it did not provide a document management tool that would work on the SAP Cloud, which is hosted on SAP’s data centers. Now, Egnyte’s file storage system will be hosted on a customer’s servers, in the cloud, or both and customers will be able to access documents straight through the SAP Cloud portal, or through the regular Egnyte apps and web interfaces. It is a big tie-up for Egnyte and will surely open a lot of doors for the company.

Questions for Egnyte’s Board

Compared with its rivals Box and Dropbox, Egnyte has chosen a path of operating with a profitable business model. But I would like to know what is the exit plan that Egnyte has for its investors? At ten years old, with revenues still less than a hundred million, its investors have been very patient. Is SAP an eventual exit path for the company?

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