Union Tribune: Captiva's paper chase paying off

December 9, 2005

Captiva's paper chase paying off
 

Data-conversion firm bet against the odds
By Kathryn Balint
UNION-TRIBUNE STAFF WRITER
December 9, 2005

Don't tell Reynolds Bish about the "paperless society."

During the dot-com heyday of the late '90s, when there was much talk about how computers would eliminate the need for paper, Bish dismissed the thought.

He was the co-founder and chief executive of Captiva Software. And everything he had put into the business was riding on the assumption that companies were inundated with paper – forms, claims, invoices, you name it – and all those documents needed to be put into computers.

"I could see that paper wasn't going away, and, if anything, it was increasing," Bish said.

Captiva Software allows companies to convert thousands of pages a day into digital data. Still, the Internet bubble, a boon for many other software companies, was a bane for Captiva.

Many potential customers of the company held out hope that paper – and the organizational mess that goes with it – would go away with the advent of personal computers and the Internet. At that point, they weren't about to spend money on software to bring order to their stacks of documents.

That prevailing attitude almost caused Captiva to go under.

"We really were afraid we weren't going to make it," said Jim Berglund, an early investor in Captiva and a former board member. "When the talk around everyplace was how good everything was, here we were, scraping along."

Bish asked investors who had put $4 million into the company to pony up another $4 million. It was a bet, more or less, that paper was here to stay.
 
After the meeting, board member Mel S. Lavitt pulled Bish aside.

"Five years from now," Bish recalls Lavitt telling him, "people are going to either think you're a genius or a complete idiot."

It's been six years since that conversation, and Captiva Software, one of the fastest-growing technology companies in San Diego, is on the verge of being acquired later this month in a deal that, at least in the eyes of investors, pushes Bish closer to the "genius" end of the spectrum.

EMC Corp., the world's top maker of corporate data-storage equipment, has agreed to purchase Captiva for $275 million in cash, or $22.25 per share, a premium of 22 percent over the software company's closing price Oct. 20, the day the deal was announced. Early Captiva investors are getting 10 times their money back from the deal, which is expected to close by the end of this month.

Captiva Software got its start as TextWare Corp. in 1989 in Park City, Utah.

At that time, turning paper documents into digital form was a laborious process. Data entry employees typed in the information on systems designed especially for the task.

Bish and TextWare co-founder Steve Burton saw a need for software that could help data entry employees enter the information more accurately and directly into personal computers.

So, in a tiny office over a year-round Christmas store in Park City, Bish, Burton and four other employees set out on their mission to help corporations dig themselves out from under mountains of paperwork.

With the company's software, data entry clerks still typed information from a paper document. But the key to the software was that it could check for inaccuracies. ZIP codes, for instance, could be matched to cities.

With Bish's business background, Burton's technical expertise and a credit card, they managed to get the business up and running.

"It was pure bootstrapping," Bish said. "We did everything from go without a salary for a year or more to using our credit cards."

Over the next few years, the task of keying in data became more and more automated.

In 1996, TextWare introduced software that could actually "read" type-written words on a scanned piece of paper using optical character-recognition technology. It significantly reduced the number of data entry clerks needed.

The software was a hit with credit-card processors, insurance companies, shipping companies and other corporations that handled thousands of forms a day.

Over the years, Bish's company has acquired or merged with five firms, has gone public, changed its name twice and moved its headquarters to San Diego.

(The move to San Diego came in 1998 when, in its second acquisition, the company bought Wheb Systems, based here. In 2002, the company merged with the publicly held ActionPoint, a San Jose document processing company, and changed its name to Captiva.)

All the while, corporations in the Digital Age found themselves in the ironic position of being deluged with paper.

One of Captiva's customers, the Knights of Columbus, which markets life, annuity and long-term care insurance to its members, found itself bulging with paper in 2002. Seventy million documents stored in file cabinets on two floors of its New Haven, Conn., office building were causing the steel frame of the building to bow.

The Knights of Columbus turned to Captiva's software to turn its paper documents into digital form at the rate of 65,000 a day.

"You can go way back into the '70s, and there has been wave after wave of technological innovation that have led people to believe paper was going to go away," Bish said. "And despite all of it, the volume of paper forms and documents has just continued to increase."

An estimated 80 percent of all information is still paper-based, according to Forrester Research, a market research firm.

Captiva's flagship products, InputAccel and FormWare, are used to process more than 85 million pieces of paper worldwide every day. As of March 2004, Captiva calculated that its software had been used to convert more than 66 billion paper documents into digital form, representing about 11 pages for every person in the world.

Harvey Spencer Associates, a market research firm, estimates that at least six out of 10 business documents are scanned and converted into digital form.

"Most consumers have been touched by our software without ever knowing about it," said Rob Jensen, Captiva's director of corporate communications.

With advances in technology, Captiva's software does more than ever to help companies bring order to their mountains of paperwork.

The software is able to straighten documents that are skewed, clean up stray marks or stains and even read handwritten information. It can read both forms as well as documents that have no real structure, such as invoices. And now Captiva's software is also used to help route electronic documents, such as e-mails and faxes.

In September, Captiva was named one of the fastest-growing technology companies in San Diego by the accounting firm Deloitte & Touche for its 172 percent increase in revenue between 2000 and 2004.

Its revenue this year is projected to be $84 million to $86 million.

For some time, EMC has had its eye on Captiva.

EMC, based in Hopkinton, Mass., is transforming itself into a company that goes beyond data storage by helping customers move, organize and manage their digital information more efficiently.

Just two years ago, EMC acquired one of Captiva's closest marketing partners, Documentum, a Northern California company that makes business software for managing Web pages, medical records and video files.

Acquiring Captiva was the logical next step.

"Captiva provides the front end of turning paper into digital assets, and Documentum provides the engine to process those assets," said Whitney Tidmarsh, vice president for solutions marketing, of EMC's software division. "Our vision is to provide the whole solution from capture to, ultimately, archival. A one-stop shop, if you will. Captiva is a technology fit, a financial fit and a culture fit for EMC."

EMC, the world's sixth-largest software company with projected revenue of more than $9 billion this year, already has a San Diego office with 75 employees.

Captiva stockholders are expected to approve the acquisition by EMC at a meeting Dec. 23. EMC plans to make no changes at Captiva when the acquisition becomes final.

Jon Hickman, vice president for equity research for MDB Capital Group, has covered Captiva since its stock sold for $5 a share two years ago.

"I wish I could find another company like it," he said. "I always thought it was a really solid company with really good management, and they were all alone at the high end of the image capture space. They didn't have a lot of competition. While it lasted, it was a great story."