March 18, 2002 The Next Big Trend In VC? Looks Like Storage Management By Robyn Kurdek & Dan Primack First they backed the content companies. Then they supported those who promised to store all of that content. Today, venture capitalists are hot on the tail of anyone who can actually manage the complicated, and sometimes inflexible, storage technologies. Keeping the coals glowing, two new players will enter the mix this week by announcing successful rounds of Series B venture funding. Not only did both firms - Los Gatos, Calif.-based Agile Storage Inc. and Mountain View, Calif.-based Arkivio Inc. - buck the down market by getting cash in the first place, but they also proved that VCs are still willing to pay to play if the prize is right. Agile, for example, received an up-round valuation as part of its $26 million deal, while Arkivio wasn't even looking for additional funding until being cajoled into a $9.5 million round by an eager outside investor. Both companies have storage-seasoned executive teams, and are now also supported by significant capital cushions. Agile Glides Into Second Round Agile Storage believes that storage network end-users are interested in consolidating their various storage environments to maximize both resources and flexibility. Rather than asking enterprises to strip down their existing infrastructure and start again from scratch, Agile is developing an agnostic set of management tools that can sit over existing technologies. Even though the system is only now going into an alpha site, it nonetheless managed to attract significant investor attention when it launched its Series B deal earlier this year. After considering bringing on multiple outside investors, the firm accepted a solo bid from Worldview Technology Partners, whose co-founder James Wei had previously worked with Agile CEO Desmond Young at now-acquired Assured Access Technology Inc. Wei will also sit on Agile's board of directors. The company had raised a $14.2 million Series A round in January 2001 at a post-money valuation of approximately $35 million. For the oversubscribed $26 million deal being announced tomorrow, existing investors Foundation Capital and Mayfield Fund re-upped alongside Worldview. "The issue of bringing in more outside investors wasn't really an issue at all," says Mark Saul, a general partner with Foundation Capital. "We actually wanted to buy even more [equity in the company] than we could." Agile is currently scouting out beta customers for a summer testing period, with an actual product launch expected in the fourth quarter. A second product is set for 2003, at which point the company will likely go back out into the venture market for additional capital. Arkivio Socks Away $9.5M Also interested in the storage management space was Voyager Capital's Curtis Feeny, who started looking for such investment opportunities a few months back. In his search, he kept hearing raves about Arkivio from his Silicon Valley peers. "I kept hearing that Arkivio had a strong team who was from the storage management space," explains Feeny, a managing director at Voyager."They had done it before, and gotten good customer traction and developed good relationships, so I called them." At the time, Arkivio wasn't actively looking for venture money, but Feeny ultimately convinced the company's management that there was no time like the present to raise a new round of financing. To that end, the company is expected to announce today that it has closed a $9.5 million Series B deal. Voyager led the transaction with a $5 million investment, with Series A backers JAFCO America Ventures and Moore Capital Management also participating. Feeny received an Arkivio board seat as part of the financing. Some of the company's VC cheerleaders apparently didn't get in on the round, however, as it ultimately had to turn some money away, says Arkivio Co-Founder and CEO Giovanni Paliska. "Most people over the next five years are going to have a huge amount of a data storage crud building up in their enterprises or residences, wherever they keep data," Feeny adds. "When you look at the convergence of an infinite amount of data, infinite bandwidth and infinite processing power, then it becomes a question of how do you manage those elements, and how do you manage in between those elements? The management, to us, is where important problems need to be solved within enterprises." That's where Arkivio comes in. Essentially, the company has developed a software-based solution that has the capability to determine what is the best use of available storage resources, and how enterprises can maximize those resources. "We increase utilization, which is a big deal in this economy where people don't want to spend money," says Arkivio's Paliska. "We reduce the necessity of buying storage short-term." Currently, many storage management companies offer solutions that are, in essence, reporting engines. They monitor a storage network, determine how the storage resources are being used, and then report that information back to information technology managers. Like its peers, Arkivio offers a reporting function, but its solution also has a built-in management component that automates the process of reallocating storage space to maximize available resources. In other words, not only does Arkivio's software report problems within the storage network, it also fixes them. Moreover, it's a plug-and-play device, which means enterprises don't have to change their existing network infrastructure in order to deploy Arkivio's storage management solution. The company expects its product to be available in the summer, and anticipates it will begin recording revenue by next March. Arkivio will likely need another round of financing around that time as well, Feeny says. Founded in December 2000, the company was last in the private equity market about a year ago, when it raised a $3 million Series A round led by Moore Capital.