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Goldman Sachs Just Put $75 Million into This Cloud Startup

October 10, 2018, 1:00 PM UTC

Goldman Sachs is a believer in the small startup Egnyte, which specializes in helping companies manage their online documents and files.

Egnyte said Wednesday that the banking giant invested $75 million into the startup, bringing its total funding to $132.5 million since it was founded in 2007. The company declined to comment on its valuation.

Holger Staude, the vice president of Goldman Sachs’ (GS) private capital investing unit, will join Egnyte’s board of directors as part of the deal.

Egnyte CEO Vineet Jain said the startup looked to raise money about two-and-a-half months ago, and finalized the deal with Goldman Sachs on Sep. 28. Jain said he expects this funding round to be Egnyte’s last before it aims for an IPO at a later, unspecified date. The last time Egnyte raised funding was in Dec. 2013.

Although Jain said that Egnyte is cash-flow positive, the company decided to raise funding to build its customer support staff. Having a large customer support staff is important for companies that sell software in a cloud subscription model, because of the challenge of retaining customers once they’re subscriptions expire. The belief is that an active customer support team can consistently interact with a particular client, up-sell them on new features, and convince them to renew their subscriptions once they end.

One way Egnyte is saving money is by planning to expand in cities like Spokane, Wash. and Raleigh, NC., in which employee wages are significantly lower (as well as the cost of living) than in major tech hubs like the San Francisco Bay Area or New York City.

“The last place I want to hire is in Mountain View, Calif., to be honest,” said Egnyte CFO Steve Sutter.

Sutter acknowledged that by taking money from an investor, the company will experience “some dilution there” regarding the company’s ownership. But that’s necessary because the company wants “to move the needle” and expand quickly, he said.

Egnyte will need that money as it operates in the competitive document management space, in which companies like Google (GOOG), Microsoft (MSFT), Box (BOX), and Dropbox (DBX) all compete in. Dropbox, it should be noted, went public in May a few years after rival Box went public in 2015.

One way Egnyte aims to differentiate itself from others is by concentrating on smaller-to-medium sized businesses instead of giant corporations. It’s easier for Egnyte to gain smaller companies as customers and “avoid the lumpiness of chasing the big whales,” Jain said referring to the challenge of landing larger companies. It should be noted that companies like Dropbox and Box could also push towards smaller businesses if companies like Microsoft and Google focus on larger clients.

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“It will not hurt my sensibilities,” Jain said of competitors who may belittle the company for focusing on smaller businesses.

Other Egnyte investors include GV (formerly Google Ventures), Kleiner Perkins, venture capital firm Floodgate, Northgate Capital, Polaris Partners, and Seagate Technology.