Huddle Raises $51 Million To Compete In Online Collaboration Market

Huddle, a company that offers Web-based workspaces to businesses for collaboration and document storage, announced today it has raised $51 million in a financing round to arm it for competition with rivals, such as Los Altos, CA-based Box Inc.

A significant percentage of the new capital will be spent on building up the San Francisco office that serves as the co-headquarters of Huddle, which was founded in London in 2006. In 2010, Huddle started moving its top executives to the Bay area, where it was gaining U.S. customers and attracting many of its new investors, says co-founder Andy McLoughlin, senior vice president of strategy.

“San Francisco is our largest U.S. operation,” McLoughlin says. “San Francisco is the office that will grow the most in the coming year.”

Huddle is less well known than local competitor Box. But Huddle and Box are both vying to offer services beyond simple Web document storage, which has become a commodity under severe price pressure. Data storage providers include tech behemoths Google, Apple, and Amazon.

Box, like each of those big players, offers consumers and enterprises a limited amount of free storage, while trying to attract paying customers who want more space on its servers. Box has been adding features such as collaboration tools and security safeguards to appeal to businesses that need to share documents within internal working teams and with outside partners.

Huddle, on the other hand, has never gone after the consumer market, or tried to build a customer base by making small amounts of storage available for free, McLoughlin says. Its mission from the beginning was to serve enterprises that would be ready to pay fees for the service after a trial period, he says.

“It’s always been B2B,” McLoughlin (pictured above) says.

Both Box and Huddle are trying to improve on Microsoft’s SharePoint software, a longstanding incumbent in the enterprise online collaboration market. Microsoft now offers SharePoint Online, a Web-based version of the software sold as a monthly subscription. Microsoft also acquired a communications channel for SharePoint users through its 2012 purchase of Yammer, a San Francisco-based enterprise social network company.

Huddle aims to meet the changing technology needs of businesses, including big companies as well as law firms, consultants, advertising agencies and construction contractors, which work closely with their customers and partners online. To serve those markets, documents must be protected as they flow outside company firewalls, and often, to mobile devices outside company buildings.

“Storage has to be highly secure,” McLoughlin says. Huddle owns its own data storage centers, he says.

Beyond security services such as encryption, cloud collaboration companies try to make it as easy as possible for work teams to set up Web-based meeting places where they can edit and store multiple versions of their documents, and exchange messages with each other.

Huddle has 170 employees based in London, San Francisco, and branches in New York and Washington, DC. The San Francisco office hosts 35 employees, including McLoughlin and Huddle CEO Alastair Mitchell. The company plans to expand its staff substantially with the $51 million in new money from the Series D financing, which was led by Zouk Capital. Joining the round were the Hermes GPE Environmental Innovation Fund and existing investors that include Matrix Partners, Jafco Ventures, DAG Ventures, and Eden Ventures. That round brings Huddle’s total fundraising to $86 million.

McLoughlin says Huddle hopes to distinguish itself with superior collaboration features and hands-on customer service. He sees an advantage in the fact that Huddle hasn’t been distracted by serving millions of consumers who want free storage for their photos and other personal files.

“We’re concentrating on enterprise tools our customers care about, not on the consumer features that a huge universe of free users would demand,” McLoughlin says.

Huddle counts large U.S. companies among its customers, including Proctor & Gamble, Johnson & Johnson, and Unilever, McLoughlin says. But government agencies make up a third of its clients, which include the U.K.’s huge National Health Service. In the United States, NASA and the Office of the Secretary of Defense are also customers, McLoughlin says.

How much revenue those customers yield is a separate question. Some enterprises may pay for just a few employees to use Huddle; others may purchase “seats” for whole department staffs. That explains why Huddle can claim that its customers include “80 percent of Fortune 500,” while Box has claimed that its clients include “99 percent of the Fortune 500.” Both Huddle and Box are private companies, so they’re not obliged to disclose their revenues to the public.

Box had filed papers with the Securities and Exchange Commission in March to prepare for an initial public offering, but later delayed the IPO. In July, Box raised $150 million from TPG Growth and Coatue Management. Box names Chevron, Safeway, Nationwide Insurance, and General Electric among its large corporate customers.

Huddle, with its own new capital, is squaring off to compete in a rapidly changing sector against well-funded competitors, McLoughlin says.

“Having this cash cushion means we can invest more aggressively in sales and marketing, and take the fight to them,” McLoughlin says.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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