HighQ Takes On The Enterprise Collaboration Space With An Eye Toward Data Sovereignty

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London-based HighQ is opening a new data center in Australia, growing its bid to provide locally supported enterprise collaboration and file-sharing products. The company has quickly expanding revenues, and a key offering: If you use HighQ, the U.S. government will likely have a harder time than usual getting its hands on your data than if you use a U.S.-based provider.

The enterprise collaboration space is hot and crowded. Microsoft wants Office 365 combined with Yammer and OneDrive for business to win. Box wants its large company-focused file-sharing and storage service coupled with BoxNotes and Office integration to win. Google is betting that its collection of productivity software and Drive storage will win. And Dropbox is pivoting to the enterprise as well, after long dominance in the consumer cloud storage market.
HighQ is competing with companies that are larger and wealthier.

Data Sovereignty

Note that HighQ’s aforementioned competitors are all based in the U.S. That means that the United States government currently deems that it has the authority to command user data from each using a domestic search warrant even if that information is stored in an overseas datacenter. Microsoft is currently challenging that legal view in court, but for now it appears to remain in effect.
HIghQ, headquartered in the U.K., has a different corporate makeup that gives it an advantage. Since it is not incorporated in the U.S., its data stored on overseas data centers is far more removed from the reach of the United States government than the data of companies based in the country.
However, HighQ does operate in the U.S. HighQ Inc. operates in this country, but has no legal connection to HighQ Ltd, the British company. The two entities share common shareholders but are distinct. So when HighQ Ltd stores data in the United Kingdom or Australia, the United States has to employ a separate legal method to command data access to the information — the mutual legal assistance treaty (MLAT) here is a common instrument.
The CEO and co-founder of HighQ, Ajay Patel, told TechCrunch in a phone interview that the legal framework at play is “evolving.”
For now, HighQ has a potential edge on its competition. It’s been around for more than a decade, has been bootstrapped to date — leaning on an initial £20,000 injection from its founders — and it’s considering outside capital. According to Patel, it has “healthy” cash accounts and is profitable. Still, HighQ wants to grow more quickly and intends to increase its sales and marketing employee pool from its current 12 percent.

Top And Bottom Lines

Patel told TechCrunch that HighQ has a current revenue run rate — forward 12 months — of around $10 million. He expects that figure to rise to $15 million by April. Presumably some of the company’s expected rising marketing spend will assist in that growth.
The $10 million and $15 million figures put HighQ at the smaller end of the enterprise collaboration space. The two revenue figures, it’s worth noting, only encompass recurring revenues, and not one-time fees or other incomes. The company’s growth, this far into its history, appears to have legs. It has averaged more than 50 percent growth over the last three years.
Its margins, however, are unusual. The company operates with an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 35 percent, and it’s profitable. Given, according to the CEO, “no interest payments or amortization” and “minimal” depreciation, the company has net profits of around 26 percent of revenue.
What is the company worth? I spoke to several venture capitalists who have knowledge of the space that HighQ operates in, and received varied estimates between $100 million and $200 million, depending on its ability to demonstrate evidence that revenue growth will continue, and that its margins will hold up. That’s a big “if.” One venture capitalist I spoke to, quoting the company’s numbers, called its profitability “impressive.”

Edges And Exits

If Microsoft loses its case to protect data stored abroad from the hands of the United States government, the government of its home country, it could bolster HighQ’s market position. That could mean more growth for the smaller firm.
However, given that HighQ is a mote compared to the companies that it is competing with (Box spent more than four times HighQ’s current run rate in its last fiscal quarter on sales and marketing alone; Google and Microsoft are worth a combined $730 billion), it could be a simple acquisition target.