Covata listed too early, promised too much, delivered too little; but its security focus is still spot on according to CEO Ted Pretty.
Ted Pretty has a storied history and has performed a series of prominent roles in Australia’s tech sector for more than 20 years.
In January he took over the role as CEO of Sydney-based security business Covata. Since then, he has cut headcount from 46 to 21 and halved the cash burn rate, while offices in Washington and San Francisco have been closed.
He’s also refocused all the company’s efforts on its SafeShare system designed for enterprise grade information management, effectively mothballing Delta, which allowed organisations to take a DIY approach to information security.
He’s also overhauled the board, now chaired by Bill McCluggage, with former ASIO boss David Irvine and former finance minister Lindsay Tanner completing an all-male quartet.
It’s been a busy few months. But with the Covata share price languishing at 3.5 cents at time of writing, he’s still got some convincing to do.
A lawyer by training with a tech/telco focus, Mr Pretty’s first major foray into the tech sector was as group managing director of Telstra from 1997 to 2005, he subsequently chaired Fujitsu and NextDC, before being named CEO for Hills Industries in 2012, when he set about transforming the company most famous for its backyard clothesline into a technology services business.
So why at 59 would Mr Pretty want to take on a challenge like Covata?
Originally called Cocoon Data Holdings the company was founded in 2007 to develop solutions for the Defence Department, before undertaking a backdoor share market listing in 2014.
Under Mr Pretty’s leadership; “We’re trying to take the business from its original mandate which was a single application to securely collaborate between parties to a broader one which seeks to enable people to discover where the sensitive data is, to protect it by data masking or encryption…and then monitor who is sharing what information with whom.”
It’s almost a year since the company secured what it then described as a ‘second and final’ tranche of $13.2 million private placement led by Fidelity International and TPG Telecom.
Right now the company has a little over $7.6million cash left – though it expects an R&D rebate at the end of the year to top up the coffers to $8 million plus.
Mr Pretty acknowledged that the Government’s R&D tax incentive was absolutely critical to Covata, to the extent that it “keeps us afloat”. Any existential threat to that incentive, and the looming changes to the 457 visa scheme are constant concerns for the company he said.
Prior to Mr Pretty coming on board, the company had pinned its growth hopes on winning a contract with German health insurance business Barmer and another with the UK Crown Prosecuting Service – but neither bore fruit.
It also had hoped to be involved in a Cisco internet of things security project which has since been shelved.
Mr Pretty said; “The oxygen for the company previously was making announcements about what we were going to do, or meetings we had, or opportunities that might be there, and there was almost a press release a week. There were many things that the shareholders were hanging their hats on from time to time that we felt were too speculative.”
In Australia the company has yet to make any sales outside the public sector where it has 15 clients. Mr Pretty said he is now focused on all potential markets including the enterprise and small and medium business sectors, in Australia and Europe ahead of the introduction of its General Data Protection Regulation in 2018.
While he is enthusiastic about SafeShare’s potential Mr Pretty acknowledged that this is a highly competitive market.
“I think our company like others fell into the trap of thinking ‘well we have a patent over a certain way of doing this so we must be clever and unique’. But there are many roads that lead to the same destination and each of them can be patented.
“What we are trying to do is say we haven’t got a lot of sales traction on the business as it is in the past. We need to focus on where the market has moved to and go there quickly.”
Demonstrating that lack of sales traction, in the three months to the end of December Covata’s receipts from customers were just $4,000. In the three months to the end of March that rose to $42,000, admittedly after a delayed payment from the previous quarter.
Mr Pretty does not shy away from the fact that the company needs to bulk up and says that growth by acquisition is still an option, saying he is confident he could raise the funds needed for the right target.
Despite the challenges ahead he said’ “There is a high level of conviction that this cyber security market has got a good thematic, it’s got some good strong growth potential, it’s still a high risk industry,” in part due to the intense competition.
Even so he believes; “Cyber spend is growing at a phenomenal compound rate so there is good opportunity.”