Software Players Get Sales Ammo

Two privately held makers of data-protection software locked up new funding this week, hoping to shift their growth into higher gear.

NSI Software Inc. secured a third round of $7 million from existing investor ABS Capital Partners. NSI has raised more than $60 million in capital to date, according to company sources. Indeed, given previous reports at the time of NSI's second round, the new funding should bring NSI's total to about $72 million (see NSI Notches $15M).

Separately, Unitrends Corp. announced Series B financing of $8.1 million, a windfall compared with the $1 million in venture funding it received in 2003. Aurora Funds led this latest round, which also saw contributions from existing investors Harbert Management Corp. and ECentury Capital Partners. Prior to that, Unitrends founder Steve Schwartz financed the company himself, says a company spokesman.

Neither NSI nor Unitrends is, strictly speaking, a startup. Fourteen-year-old NSI claims a customer base of more than 4,000 for its replication and disaster-recovery software. Unitrends, founded in 1989, claims several hundred SMBs use its backup-and-recovery products.

But industry observers say it's no surprise these longstanding firms are seeking fresh funding. Competition among data-protection suppliers is heating up, especially for SMBs, thanks to regulatory compliance concerns and rumblings from established players such as EMC Corp. (NYSE: EMC) and Veritas Software Corp. (Nasdaq: VRTS). (See Replication's All the Rage and EMC Dances With Dantz.) It's make-or-break time for smaller contenders, no matter how long they've been in business."If they look like me-too companies and don't come out of their skins, they will be history in a year," says analyst Arun Taneja of the Taneja Group consultancy. "They have to separate themselves from the pack -- not just in their technology, but just as much in marketing and sales."

Indeed, sales efforts figure heavily in this week's funding news. Unitrends will put its investment largely toward sales and marketing operations, and the company expects to double its current overall staff of 30 within a year.

NSI will try to rapidly expand product development and international sales -- a turnabout from its previously slow and steady approach (see Don Beeler, CEO, President, and Chairman, NSI Software).

If successful, these more aggressive strategies could pay off handsomely. Storage software revenues have grown at a healthy clip of late (see IDC: Storage Software Hits $1.9B). Market watchers see that trend continuing: IDC forecasts a 35 percent jump in backup, archiving, and replication software revenues from $4.3 billion in 2004 to $6.58 billion in 2008.

A recent report from Merrill Lynch & Co. Inc., combining Gartner Inc. estimates with its own, projects slower but still significant gains. The firm pegs compound growth for storage software overall at 7.3 percent and data replication alone at 9.4 percent through 2008.Taneja, for one, concurs with those rosy predictions. "There's a strong recognition by IT people that they have to improve their data-protection environments," he says. "I think we'll see a tremendous liftoff, even more than analysts are describing."

Brett Mendel, Senior Analyst, Byte and Switch Insider