Growing pains: with stars in their eyes, executives of three-year-old software firm Vidius Inc. thought they could take Hollywood by storm--but then reality set in.

Like so many who came to Hollywood with dreams of becoming the next big thing, start-up tech firm Vidius Inc. has had its dose of reality and moved on.

Founded in 2000 by former Israeli military technologists Assaf Litai and Ariel Peled and backed by $6.5 million in venture funding, Vidius developed software that allowed users to track how files moved from computer to computer.

That caught the attention of the Recording Industry Association of America and the Motion Picture Association of America, two trade groups hot to stem illegal swapping of music and movie files.

Flush with the promise of the entertainment industry's early interest, company executives boasted in 2001 that its 2002 revenues would reach somewhere between $5 million and $10 million.

But Hollywood promises are often far removed from reality. Vidius executives soon came to believe that consumer pirating was uncontrollable, and more importantly, the industry did not have a clear strategy to deal with the problem. Its 2002 revenues hit only $210,000.

"Entertainment companies have a history of not wanting to pay for technology. They would rather litigate," said Craig Moody, 44, who was brought in last September as Vidius' chief executive.

The inability to navigate a clear path in the entertainment world led to a shift in strategy, and the departure of Moody's predecessor, Derek Broes.

Retooling application

The shift involved pitching Vidius' tracking software to companies whose corporate networks were being used by employees to move illegally downloaded files.

Before leaving, Broes started the transition to business software. "It seemed like a very natural transition for a security company to make. I was far more interested in the entertainment side," Broes said of the breakup.

He has since started the Distributed Computing Industry Association and is executive vice president of worldwide operations at Woodland Hills-based Altnet Inc., a commercial provider of file-sharing software.

The arrival of Moody, former chief operating officer of Time Warner Interactive, coincided with Vidius' move from North Hollywood to Beverly Hills and the release of its new flagship product, PortAuthority.

PortAuthority adapted Vidius' electronic file searching technology to help businesses manage information and has had the added benefit of assisting them in navigating the growing assortment of corporate compliance regulations.

The software takes what is known as a contextual psychophysical extraction, or electronic fingerprint, from a file stored on a server and informs the file's author if someone tries to move any of its information out of the system. The fingerprint leaves no traces on the file and is made up of a massive sequence of numbers.

The effect is to catch an employee who cuts and pastes a piece of information from a "fingerprinted" spreadsheet, for instance, and then tries to e-mail it outside the company. The software also is designed to keep company security officers abreast of every attempt to e-mail protected documents internally.

"We follow the information in any file format or context. The challenge is allowing people to think differently about information in the normal workflow," said Moody.

A second, $5 million round of VC funding backed the release of PortAuthority. Lexington Ventures LLC, a venture fund of Beverly Hills-based Lexington Commercial Holdings Inc., is the company's largest shareholder. Norwell, Mass.-based CAP Ventures Inc. is also a backer.

Litai and Peled have remained with the company throughout its transition. Litai is a vice president based in the Beverly Hills office while Peled is the chief technology officer and general manager of the company's development operations.

Oversight Increase

Though it fell well short of initial revenue projections, Vidius has seen spike in sales recently.

Spurred by PortAuthority's ability to assist with compliance regulations that have come with the Sarbanes-Oxley Act and the Health Insurance Portability and Accountability Act, revenues this year have already exceeded $700,000.

Sales are generated from through partnerships with technology consulting practices at Lockheed Martin Corp., Unisys Corp., Hewlett-Packard Co. and IBM Corp., as well as from Vidius' own direct marketing.

After testing the software at some financial institutions last year, the company has landed several new customers, including West Covina-based First Financial Credit Union, the U.S. Senate Federal Credit Union and Ranbaxy Laboratories Ltd., an Indian drug manufacturer.

Others in the industry acknowledged Vidius' technical strengths but doubted its ability to sell products.

"It makes sense, coming from their security background," said Jeff Green, director of compliance at LaserFiche Document Imaging, a Long Beach software maker that addresses corporate governance regulations. "I'm not sure it can work unless they can partner with an existing product. The vast majority of people are looking for a total solution."

ROFILE

Vidius Inc.

Year Founded: 2000

Core Business: Corporate information security

Revenues in 2001:$85,000

Revenues in 2002: $210,000

Employees in 2001:30

Employees in 2002:26

Goal: Reaching $2 million in revenues in 2004

Driving Force: Enabling compliance in an increasingly
complex landscape of internal and regulatory requirements