$25 Million Series D Round Examined

In March 2010, Pivot3 announced a $25 Million Series D Round (confirmed by Pivot3's press release [link no longer available] and in its SEC filing). This follows a $25 million round in 2008 and brings their total amount raised to $75 Million. In an email, Pivot3 emphasized two important uses of the new funding:

• "Expanding the sales force, particularly internationally since all of our sales to date have been in the US and the US is less than half of the [global] market"
• "The desire to capitalize on opportunities for our platform outside of surveillance."

Given the relative small market of video surveillance (relative to IT generally), we think these steps will be necessary to justify the large investment. While $75M or greater investment in the storage market may be commonplace, in video surveillance this is at the very high end (see our investments directory).

We believe Pivot3's best opportunity is for larger scale surveillance deployments (with hundreds of cameras) where they possess the strongest technological differentiators (specifically their cloudbank offering). The cloudbank product allows for using the same appliance as both storage array and server with built-in failover from one server to another (requires the use of at least 2 appliances).

The key question is: How big of the storage market can Pivot3 address? The storage market is full of substitute offerings. While video surveillance is moving away from storage internal to DVRs/NVRs, many options exist: (a) storage on-board cameras (early stage), (b) NAS systems (quite inexpensive and expanding rapidly for smaller deployments), (c) 'regular' iSCI SANs (often good enough and equal in price to Pivot3's offerings for 10TB - 20TB applications and (d) specialist large scale systems such as DataDirect Networks [link no longer available] for PB type systems).

In its funding announcement, Pivot3 disclosed that it has 140 total customers, further indicating that while each project may be individually large, their addressable market is likely to be narrow.

We suspect Pivot3's sweetspot will be in the 100 - 1000+ camera deployments (especially since direct competitor Intransa has evolved their strategy to be more of an NVR appliance provider than a iSCI SAN supplier). For sites with under 100 cameras, alternative NAS and SAN solutions become more attractive (plus Pivot3's redundancy feature is not applicable until you use multiple Pivot3 appliances).

The 100 - 1000+ camera deployment per site is a niche for video surveillance. Most agree that the average number of cameras per deployment is 16 - 24 (see an SSI integrator survey on this). In any given building, there's only so many surveillance cameras one needs. With most facilities having poor WAN connections, aggregating storage across facilities is uncommon. This results in only a few percent of deployments with more than 100 cameras per site. Undoubtedly, the dollar value is disproportionately higher but it's still likely only a fraction of the overall market.

On the other hand, in 2009, Pivot3 introduced two product families to expand their market offerings to smaller deployments - the ServerBank and VideoBank. What remains to be seen is how competitive and what value this brings beyond the multitude of COTS offerings on the market.

In February 2010, Pivot3 announced that 2009 revenue was triple that of 2008 with gaming, transportation and government as key verticals (note: all verticals with high camera counts, note 2: actual revenue numbers were not disclosed).