site FT.com : How mutual support swept a path to VC funds. Paul Tyrrell 1502 words 24 January 2006 Financial Times (FT.Com) English (c) 2006 The Financial Times Limited. All rights reserved Clearswift is the company behind MIMEsweeper, the popular security product that "sweeps" e-mails for viruses. It is used by 15,000 organisations, including 40 per cent of the Fortune 500 index. Emails may also be screened on behalf of the originating company for harmful content such as defamatory language, pornography or confidential information. Such holistic protection has grown in popularity, not least because a few stray e-mails have achieved worldwide infamy. Protection can be achieved in three main ways: by licensing software for installation on a company's computers; installing a message-filtering appliance at the gateway to an intranet; or as a managed service, where a third-party company filters all ingoing and outgoing messages through its own systems. The company was established in 1982, as Net-tel, by four colleagues, including John Horton, chief executive, whose industry background included the UK's General Electric Company and Acorn Computer. Net-tel exploited the market for e-mail software until Microsoft began to dominate in the mid-1990s. Then it focused on content-filtering, building high-security systems for many well-known corporations on the back of UK government contracts that required high security. In 2001, Net-tel completed a first round of VC fundraising through Richard Anton at Amadeus Capital Partners and was renamed Clearswift. The following year it acquired a rival, Content Technologies, and with it the MIMEsweeper brand. Today, it has 230 staff in the UK, the US, Germany, Japan and Australia. Turnover was about GBP24m ($43m) in the year to March 2005. It has been in profit for the past five quarters. The founder John Horton, 59, worked as a software engineer at GEC and a technical director at Acorn Computer before co-founding Net-tel, the company that eventually became Clearswift. He stood aside as chief executive after completing his first round of venture capital investment and is now company secretary. He also oversees government-grade, high-security projects. The story of how I came to meet Richard Anton starts with an American entrepreneur, Andy Demari, who collaborated with Net-tel on various projects in the early days. He put me in touch with an excolleague of his from Olivetti [the Italian computer maker], who had become a fund manager for Pino, a small Milan-based venture capital firm. Pino was interested but could not handle the size of deal we needed on its own and suggested Amadeus as a lead investor. I knew the head of Amadeus already. It was Hermann Hauser, the founder of Acorn Computer, which invented the ARM chip [used in most of the world'smobile phones and personal digital assistants]. I had worked closely with him for five to six years and knew he was incredibly bright. As far as I was concerned,any company he was involved with would have to be good. Richard and I met up in Cambridge and I immediately found him supportive. He had invested in other software companies in the past, knew a lot about the industry and was very sharp. He led us throughthe process of shaping upfor investment without taking advantage of our ignorance in any
way. Ultimately, the Amadeus investment committee could have vetoed the deal, but we really felt the company was on our side during the due diligence. There were three investors in the first round, which brought in about GBP6.5m ($11.6m). Until then, I was the chief executive - the other co-founders had moved on. But my background was that of a technical director and we really needed a professional chief executive, as well as extra support in sales and marketing. Amadeus felt we needed a large option pool to beef up our management team. I disagreed Richard was effectively asking us to dilute ourselves for our employees, and that was new territory for me. However, he eventually persuaded me. We lined up Don Taylor [previously a director at the software firm Oracle] as our chief executive before the funding round was finished, and he helped us to focus the company significantly. A similar disagreement concerned the marketing spend necessary to consolidate our acquisition ofContent Technologies in 2002. However, overall our relationship has been quite smooth - Richard has simply tempered my aggressive entrepreneurialism. He has joined us at trade shows, making himself visible to potential customers as well as investors, and today we participate in businessschool seminars run by Amadeus about the relationships VCs between and entrepreneurs. The backer Richard Anton, 41, has extensive experience in private equity and high technology. From 1994 to 1996 he was an early-stage investor for Apax Partners, the private equity firm. He then served as director of business development and finance at two of his investments in the software industry, Autonomy and Neurodynamics. He joined Amadeus in 1998. I was interested in John Horton from ourfirst meeting, primarily because he had a credible background in technology. I was already interested in the space in which he was operating Autonomy had looked at e-mail filtering and I had tracked developments in the technology ever since I worked for Autonomy. John had a plan to move his business into full-service content security. And I thought it had a lot of potential. I was aware of the new types of threat emerging and of the potential for e-mail to be a vector for those threats. There was also a lot of press attention in 2000-01 about employees circulating inappropriate material. I could see opportunities in both in-bound and out-bound filtering. We could license technology to service providers so they could do the filtering themselves, or we could sell direct to [business] customers. Overall, Net-Tel struck me as a treasure chest of good technology that had not yet been fully exploited commercially. John is strong technically and understands the defence market well. He is the stable core of the business - the memory bank.Perhaps his most impressive quality is that he is supportive to the professional management team I helped to bring in. Often founders can act as back-seat drivers. By contrast, John understood he had to pass on the baton. He reviews strengths and weaknesses of the business objectively, as if he were both executive and non-executive. What I brought to the partnership was experience of commercial positioning, finance and management recruitment. At the beginning I visited the company regularly and made a point of meeting customers and potential industry partners to validate the proposition with them. I was closely involved in the acquisition of Content Technologies. I also involved myself in all issues of management succession - for example, Andy Demari, our initial chairman, was suitable for the early days post-investment, but he has his own business to run on thewest coast of the US. We replaced him with Carl Symon, who ran IBM in the UK during the 1990s and is currently on the board of three FTSE companies. We needed that heavyweight experience for the next period of growth.
John and I disagreed over the size of the option pool necessary to bring in people like Carl, but only because he didn't know what the market norms really were. Since the second funding round, my involvement has been more hands-off, but I'm still a nonexecutive director and always attend board meetings. The team is in place to realise Clearswift's potential - the company went through a loss-making period while it absorbed Content Technologies, but is now in a position to prepare for an initial public offering. HOW CLEARSWIFT SWEPT TO GROWTH 1982 Three engineers and a sales manager from General Electric Company set up Net-tel, the company that will eventually become Clearswift. 1988 Net-tel launches the world's first e-mail application for Microsoft DOS. 1995 Integralis launches MIMEsweeper, the world's first content-filtering application. 1998 Net-tel changes focus to content-filtering products as Microsoft Exchange becomes the world's dominant e-mail client for business. Integralis creates Content Technologies, a spin-out company for MIMEsweeper. 2000 Net-tel seeks venture capital to finance growth. In August, Content Technologies is acquired by Baltimore Technologies. In September, John Horton, Net-tel co-founder and CEO, meets Richard Anton of Amadeus Capital Partners. 2001 In February, Net-tel completes the first round of investment; in March, Don Taylor (previously at Oracle) is recruited as CEO; in July the group is renamed Clearswift. 2002 In May, Clearswift acquires Content Technologies at a massive discount after the dotcom crash; Cazenove Private Equity and Kennet Venture Partners join the consortium. 2003 Carl Symon is appointed chairman; a mini-funding round from existing investors starts in October to cover unforeseen expenses from acquisition; in December, Mr Taylor leaves, to be replaced by interims. 2005 In June, Clearswift recruits John Lee (previously at London Bridge Software) as new chief executive. 46774394 Document FTCOM00020060125e21o0002x
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