Plugging Wikileaks

A series of high-profile reminders have government agencies and international businesses scrambling to tighten up their data and document storage and security. The reality is, quite simply, that they have not—and perhaps cannot—control data sufficiently. The new question is: can they ever?

Regardless of whether companies and bureaucracies can sufficiently contain their data in the Internet age, their ongoing efforts to do so will generate profits for investors in the next generation of data storage and security firms.

Some of the revelations leaked—almost in immediate succession—by the international network established by Wikileaks founder Julian Assange, and by others, separately, have been innocuous, amusing, or, on a more serious level, downright offensive.

And aside from the potential ramifications to the bank’s business, the information exposed this week by former Julius Baer executive Rudolf M. Elmer have potential to put some of his former clients in court. Bank of America is so spooked by whatever Assange is holding that it started gobbling up Web properties that might be used to mock its CEO after Wikileaks finally dumps those documents.

“Every U.S. company has been compromised at one level or another,” says John Backus, managing director of early stage VC New Atlantic Ventures. “But Wikileaks has brought it to a frothy point.”

Before the Wikileaks saga began to unfold, HP’s 3PAR buy in 2010 showcased not only the value of data-storage companies to cash-flush strategics—it proved precisely how far they’re willing to go to buy one. After Dell was elbowed aside in the 3PAR slugfest, analysts suggested the company might pursue Netezza—but IBM stepped in with a $1.7 billion bid. While listed companies’ overtures to targets took center stage, recent months’ M&A also had PE and VC investors sizing up deals that grabbed fewer headlines. A couple weeks back, for example, Chicago PE firm Svoboda Capital Partners invested in Databank, a document scanning, indexing and storage firm.

Last week, Confidela, maker of data protection and tracking system WatchDox, secured $9.25 million from investors Gemini Israel Funds, Shlomo Kramer and Shasta Ventures. Perhaps those investors took note of Zecter, the cloud storage firm that raised $1.5 million from investors including Sherpalo Ventures, Tandem Entrepreneurs and VeriFone CEO Douglas Bergeron, before it sold to Motorola Mobility in December for terms undisclosed.

Motorola’s deal likely foreshadows moves by other mobile device businesses to better bolster security, storage and access; Research In Motion continues to address security issues of its own. The company has historically made bolt-on transactions to integrate improved offerings into its handsets.

In coming years, investors expect developers of enhanced encryption software and flash drive-disabling products to become increasingly in demand. Security focus is increasingly moving toward businesses that create identification authentication and user tracking—never mind just storing the data. The U.S. government is only now looking to offset the devastating effects of letting its employees and minions of contract workers access sensitive data and off-load information virtually at will and unchecked.

Regional and state governments are also beginning to tap into the trend, although it is agencies at the federal level that suffered the most embarrassment at the hands of Assange and his sources. WatchDox’s VP of business development Adi Ruppin said Confidela’s government clientele has grown—he’s even crediting the notorious activist for an uptick in business. Just don’t expect a check, Julian.

“From our perspective, Wikileaks is helping to get the word out,” he says.

Jonathan Marino is the editor of peHUB.com. The opinions expressed here are entirely his own.

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