St. Anthony: Code42's business 'move' is focused growth with an eye to an IPO

Those who suspected there was more to fast-growing Code42's December decision to abandon a move from Riverplace on the Mississippi River to a planned development in Uptown may have been searching too hard between the lines.

There was speculation about a sale of what has become one of the Twin Cities' prized software companies.

However, Code42 insiders say there's nothing imminent other than staying put and focusing on fundamentals for now.

"I would have been able to walk to work from home," Chief Financial Officer Jason Bristow said of the Uptown location. "When we put everything together, and we just had a nonbinding letter of intent [with the developer], it just wasn't the right move."

It sure was a high-profile, albeit aborted, anticipated move that had praising city fathers even approving a $3 million, several-year subsidy, as long as Code42 grew as envisioned from 380 to 700 jobs.

The deal is dead. However, Code42, which makes nationally ranked backup and file synchronization software for PCs, mobile phones, laptops and other "endpoint" devices, is still planning rapid, unspecified, independent growth.

Michael Gorman, the venture capitalist and Code42 board member whose firm and another venture investor staked $52 million in the 14-year-old company in 2012, said there are no plans to merge or sell the homegrown company.

However, he and Bristow, a Minnesotan who was recruited away from publicly traded giant Amazon.com last year, said in separate interviews that Code42 likely would launch a public offering of stock within two to three years.

"The company has all the ingredients to be a public company eventually," said Gorman, of Split Rock Partners. "We want to build a great Minnesota company. And we want to give it an opportunity to run as far as possible."

Additionally, late last year Mike Stankey, the chief operating officer of publicly traded software firm Workday Inc., joined the Code42 board. Stankey said in a statement last fall he joined because Code42 is a leader in securing information and embracing technology that empowers "enterprises to protect and manage endpoint data where it exists — on the edge — while helping workers become more efficient."

And he knows something about publicly traded tech firms. As does investment veteran Gorman.

Code42 has been hailed as the hub of the Twin Cities modest software development industry by regional economic development czar Michael Langley. At the same time there is insecurity over some of our most-promising firms being acquired by larger firms in recent years. For example, Dell Inc. acquired storage firm Compellent Technologies for $960 million in 2011. And there have been smaller deals.

Brian Bell, Compellent's former vice president of global sales, another guy who knows something about public ownership, was hired as president and chief operating officer of Code42 in 2012.

Dan Carr, the veteran growth-company analyst who for 25 years ran the Collaborative, which brought together fledgling companies and financiers in a variety of forums, said he's impressed with the growth track.

"Code42 kept a low profile early and focused on building an awesome team, a truly great product and blowing away their customers," Carr said. "They did this so well they avoided the typical need to raise capital early in their development. Instead, the founders grew carefully but robustly as they continued to invest in the team and broaden the customer base."

Code42, started by CEO Matthew Dornquast and two other co-founders in 2001, has used the expansion capital and hit products to push revenue up 50 percent a year since 2011.

CrashPlan pushed Code42 into the Big Ten of data backup firms with a backup system that works for consumers and business, according to Forrester analyst Chris Sherman. And Code42 last year introduced promising SharePlan to both markets. It is designed to swiftly synchronize and share large files across mobile devices and computers, jumping into competition with firms like Dropbox and Google.

Code42 added about 10,000 business customers last year and grew revenue from $40 million to an estimated $65 million, although the company won't specify numbers. Code42 has grown from 165 people three years ago to 425, 90 percent of whom work in the Riverplace office center.

That kind of growth can choke a company.

"We trip and fall occasionally but nothing significant," Bristow said. "Our customers help us evolve. CrashPlan evolved. It was not a flash in the plan. This is an exciting time. The future looks bright."

Moreover, there's room to grow economically at Riverplace. And Bristow said employees, who hail from around the metro area, were as content to stay there, near downtown and the dynamic river area, as they were excited about moving.

Neal St. Anthony • 612-673-7144