Untangling the data knot

November 21, 2003

Composite Software nails $12.1 million on its way to making a name in the geeky field of enterprise information integration.

November 21, 2003

Like many entrepreneurs, Composite Software founder Michael Abbott stumbled upon a problem that needed solving long before he bootstrapped his startup. A Ph.D. student in neuroscience at the University of Washington, Mr. Abbott’s courses required searching for information across multiple databases. “The question was: How do you search across various genome databases when the data is in different formats?” he says. Not easily.

Eight years later, Mr. Abbott, who is 31, was still chewing over the hulking challenge of data integration, but with an eye on relieving the headaches that the problem causes big business. He jotted down a rough idea of what his software would do. He started the business in fall of 2001 in his home, recruiting seven former colleagues, as well as engineers he had previously worked with. “I told them ‘You code during the day and I’ll code at night,” Abbott recalls.

In August 2002, armed with a first funding round from Palomar Ventures that took about six months to lock down, he moved the engineers into new office space in San Mateo, California.

Composite has come a long way since. Mr. Abbott hired veteran CEO Jim Green in April, luring him from his job as CTO of webMethods. Composite shipped its first product in October, an information server written in Java that runs on a Unix, Linux, or Windows server. The company also received a $12.1 million Series B funding round, led by Lehman Brothers Venture Partners, last Monday.

Mr. Green, a 53-year-old, soft-spoken man with a full gray beard, had a track record of comfortably bouncing between chief technical and management roles. Getting him on board took some time. Mr. Abbott met with him over pizza on weekends until he was convinced that Composite’s idea was not simply an extension of what webMethods was already doing.

WebMethods’ software helps companies tie together disparate applications, such as a purchase order moving through different systems on a corporate network, to improve workflow. Composite’s software takes corporate data stored within different silos – say information stored in a Siebel Systems sales application, a PeopleSoft financial application, a Microsoft Excel spreadsheet, a bunch of email, or a section of a sales contract – and presents a single view of that data that can be stored and reused to help make better business decisions. Getting both technologies to work together is the Holy Grail of systems integration.

“Jim [Green] said, ‘You are trying to tackle a really tough problem,’” Mr. Abbott recounts. “I talked him into joining as an advisor and helping me through some of those early venture capital experiences.”

Mr. Green’s ties also brought Lehman Brothers on board for the recent deal. Lehman was an investor in Active Software, a company Mr. Green founded in 1995. Active was sold to webMethods in August 2000 in a deal valued at $1.5 billion, giving Lehman good reason to come knocking again. Through the deal, Composite picked up an influential board member in Tom Banahan, head of Lehman Brothers’ venture capital business.

Enterprise information integration may be geeky stuff, but the market is getting hot. Researchers at IT market analysis firm Aberdeen Group estimate that the market for this software – which includes big corporations that are grappling with legacy data and systems integration issues – totals $6.4 billion. Technology research firm Gartner Group now tracks data integration as a separate market. Indeed, Composite Software has a host of rivals, including IBM, which makes a product called the information integrator, BEA Systems, and smaller competitors like MetaMatrix, and Nimble Technology (acquired by Actuate in July).

Evangelos Simoudis, a partner at Apax Partners, which contributed to both of Composite’s funding rounds, says Composite has the management team to compete and win in this market. “[Mr. Green] understands this area inside and out,” he says. Clearstone Venture Partners, Palomar Ventures, and Dot Edu Ventures also participated in Composite’s Series B round.

Mr. Green founded Active Software after leaving Sun Microsystems, where he led development of the CORBA open architecture, which allows different computing programs to communicate in a network through a standard interface.

Mr. Abbott was also former chief technology officer at Electron Economy, a much-hyped startup founded by Joe Firmage that made e-commerce supply chain systems. (Mr. Firmage co-founded now-defunct USWeb/CKS, where Mr. Abbott was the head of Java development.)

Mr. Abbott says he learned a lot from Electron’s ill-fated move from an application service provider (ASP) to a software maker. “At Electron we could demo the software but we could not get the data integration to work.” The challenge at Composite, he says, was turning his idea into a viable product. “There are a lot of doctoral theses on what we are working on,” he says. “At the end of the day, it’s about delivering a product.”

Mr. Green retains a tight relationship with his former company, webMethods. The two companies have signed a partnership through which webMethods will resell Composite’s product to its base of 1,000 customers. “This gives us a tremendous boost,” Mr. Green says. “If we were to go out by ourselves and find those accounts with the lack of credibility as a startup, it would be much more difficult.” The company is also working with consulting giant EDS, which uses Composite’s technology in its own systems development.

Mr. Green says Composite will use the cash it received in its most recent funding round to expand its sales force. Of 35 employees, Composite has “few” salespeople and a lot of ground to cover, he says. Mr. Abbott says he is confident that Mr. Green will help take the business to the next level. “I am the tech guy with the long hair doing the white board thing,” Abbott says. “He is the experienced guy building the business.”

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