MSI Springs on $22M

ManagedStorage International Inc. (MSI) has raised $22 million in equity funding and has spent $6 million of it acquiring the DataVault storage services business of bankrupt storage service provider (SSP) Sanrise Inc. (see MSI Secures $22M).

The funding round was led by Tudor Ventures with participation from current ManagedStorage investors Great Hill Partners and J.P. Morgan Chase Bank & Co. Innovation Advisors assisted and advised the company with the financing.

MSI, located in Broomfield, Colo., was the only company bidding for Sanrise's DataVault remote backup business, which it secured on Jan. 10, 2003, in a Northern Californian bankruptcy court. It paid $3 million up front and will pay an additional $3 million when Sanrise's customers successfully transition over to MSI. There are apparently about 200 DataVault customers, although MSI wouldn't name names. The company expects to complete the integration of the DataVaultbusiness during the first quarter of 2003 (see Sanrise Files Chapter 11).

The fact that MSI was the only company bidding for Sanrise's services arm raises some questions about the validity of the SSP market. After all, StorageNetworks Inc. (Nasdaq: STOR), CreekPath Systems Inc., Storability Inc., Scale Eight Inc., and many others have long since turned their backs on the outsourcing model for storage and are selling software instead (see StorageNetworks Hacks Self in Half, StorageNetworks Softens Up, SSPs Switch to Selling Software, and SSPs: RIP).

In other words, just when you thought the SSP market was dead and buried, here's a company raising capital and acquiring another company's assets in this sector. What's going on, then?"The original SSP model advocated by StorageNetworks started with a fundamental flaw," says Walter Hinton, CTO at ManagedStorage. "They were trying to manage their customers' primary disk, but this data is too close to people's hearts, and having a third-party provider managing it wasn't very palatable So it never got off the ground." Incidentally, MSI has inked a pact with StorageNetworks whereby it will pick up the SSP's old services customers as their contracts run out.

MSI, which employs 103 people, says that with the addition of StorageNetworks and Sanrise's businesses, it will be cash-flow positive this quarter. "This has clearly encouraged others to put money into the company," says Adam Couture, analyst with Gartner Inc.

Couture believes companies are becoming more comfortable with outsourcing backup and recovery as the market matures. "Backup is an onerous task often assigned to the new kid on the block and is rarely monitored properly," he says. He cites a hotel chain that left this responsibility in the hands of its night clerk. "With MSI's service, companies can be sure the job is being done."

MSI's RemoteStor service ensures that a company's data is backed up daily and stored securely off-site in one of its data centers. MSI can back up data at a customer's local site, to a customer's secondary site, or to one of its own data centers.

With the acquisition of the DataVault business, MSI gets storage infrastructure and software in 24 data centers in the U.S., London, Paris, and Tokyo, as well as five employees in the U.S. and London. The acquisition brings MSI's total number of storage data centers to 45, with services now available in Europe and Japan, the company says.MSI, however, isn't the only SSP survivor. Arsenal Digital Solutions Worldwide Inc. also has a strong focus on backup-and-recovery services and recently penned a deal with AT&T Solutions. Then there are several companies, such as EVault Inc., LiveVault Inc., and Amerivault Corp.