Longworth and OVP Put $4M Into Symform, Raise Stakes in Cloud Data Storage

Some interesting bicoastal news in cloud computing today. Seattle startup Symform, a maker of cloud storage and data protection technology, has raised $4 million in its second round of funding, led by Boston-area VC firm Longworth Venture Partners. Original investor OVP Venture Partners, based in Kirkland, WA, also participated in the round. As part of the deal, Longworth partner Nilanjana Bhowmik is joining Symform’s board of directors, which includes OVP managing directors Mark Ashida and Lucinda Stewart.

Normally, we might not get that excited by a relatively small financing round like this. But it’s a decent amount for a software startup, it’s a fast-growing sector, and besides, I first wrote about this company back when it was two guys, with no funding, in a small room overlooking Lake Union in Seattle.

The two guys were founders Praerit Garg and Bassam Tabbara, a couple of ex-Microsoft veterans, and they had the audacity to go build a new data storage, backup, and disaster recovery system for small businesses—all based in the Internet cloud, and cheaper and faster than other available online services. The key to the technology is that the data doesn’t sit in one company’s data center; it is distributed among a thousand different nodes in the network. This is what Garg, Symform’s president, calls “true cloud computing.”

Of course, online data backup and recovery is a hugely competitive field, with players like Mozy (owned by EMC), Carbonite, Symantec, LaCie, Zenith Infotech, and others vying for a piece of the multibillion-dollar pie. Symform’s differentiators are its focus on small businesses instead of consumers or big companies, its military-grade data security, and its distribution strategy of working with small-business IT consultants who sell Symform’s product, along with other managed services, to corporate customers for a monthly subscription.

In April 2009, Symform raised its first round of venture funding, $1.5 million from OVP. Back then, the company had about 35 distribution partners. Now it’s up to almost 1,000 partners and 12 employees, says Kevin Brown, Symform’s vice president of sales and marketing. Brown, a veteran of seven startups including Visio, Qpass, and Tableau Software, understands the company’s distribution partners, because he used to be one of them himself—in the Boston area, where he launched his IT career. “There’s a lot of pent-up energy around the area of data protection,” he says.

Meanwhile, Longworth has been around since 1999, and just raised its third venture fund last year. The firm is known for its investments in companies such as Marathon Technologies, Constant Contact, and Thinking Screen Media. Symform is the VC firm’s first investment in the Seattle area. Bhowmik, for her part, serves on the boards of Cellufun, Viewfinity, and VKernel, and previously has invested in Scanbuy, Marathon, Tizor (acquired by Netezza), Softricity (acquired by Microsoft), and Thor Technologies (acquired by Oracle). She is a veteran of the software firm Object Design and investment banking firm Broadview (now Jefferies).

“We think Symform is bringing a truly disruptive technology to market. They harness the compute, storage and bandwidth capability of commodity (and often unreliable) hardware sitting in millions of office locations worldwide to build an ultra secure, highly resilient and extremely fast virtual cloud that can bring down the cost and increase the speed of many classes of applications,” says Bhowmik, in an e-mail message. “While online backup is gaining some traction overall and there are many players addressing the space, penetration remains very low, especially in segments where data sizes start exceeding 100 [gigabytes]. This is largely due to cost…and the speed of access. Symform’s cloud cuts down both by a factor of 10—we think their flat fee, all you can eat approach combined with the speed of their network is just the catalyst needed to break open this market—particularly in the [small and medium-size business] space.”

Earlier this week, Symform released an upgrade of its online storage and backup technology. The new product lets IT service providers (the company’s distribution partners) set up their own storage infrastructure in the cloud, and make money from it. This is interesting because it could eventually chip away at Amazon Web Services and Microsoft’s market share in cloud storage (not to mention EMC, Google, and others), at least for small and medium-size businesses.

Symform will use the new money for growth, Brown says. The company will beef up its engineering and sales teams, and aims to have about 20 employees at the end of 2010. Meanwhile, the plan is for revenues to increase by 300 percent this year, and to double the number of distribution partners to about 2,000. Each of those partners typically has 50 to 100 customers, Brown says, and many of them have previously been selling competitors’ products—so that bodes well for the company.

“We can do a lot of damage in terms of pricing,” he says.

In the longer term, Symform could become a $20 to $30 million company with a staff of just 20 to 30 employees, Brown says. But it’s going to take some time. “You don’t go ‘ka-boom’ in a subscription-based business that’s channel facing,” he says. “It’ll be a long-tail business when you build it over time.”

Gregory T. Huang is Xconomy's Editor in chief. E-mail him at gthuang [at] xconomy.com. Follow @gthuang

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