VCs Dig Deep for Diligent

Two years after spinning off from EMC Corp. (NYSE: EMC) with disk-backup software and seed money, Diligent Technologies Corp. today pulled in $22 million in funding to help develop a new product (see Diligent Technologies and Diligent Pockets $22M ).

The funding round was led by Accel Partners

and Matrix Partners, with Gemini Israel Fund participating. Accel principal Fearghal ORiordain, Matrix general partner David Skok, Gemini general partner Adi Pundak Mintz, and original investor Moshe Yanai join the board of the Framingham, Mass.-based company.

Diligent CEO Doron Kempel says the company will expand its sales and customer support staff, as well as hire engineers to work on a hush-hush secret product line that won’t launch before 2005. Diligent currently sells disk-backup software for mainframe and open systems (see Diligent Opens Up Tape Backup).

“All along we’ve been developing a data protection platform we have not told anybody about,” Kempel says.

Well, they told VCs about it. Kempel says Diligent even showed the product to VCs to secure Diligent’s first round of funding since EMC spun it off in 2002. Back then, Diligent received $5 million and an Israeli R&D center from EMC and $10 million from Credo Group, an investment firm run by former EMC engineering VP Yanai. EMC owns 24 percent of Diligent (see EMC Offshoot Lifts the Hood and EMC Details Diligent Deal).Kempel, who also came from EMC, says Diligent’s new product involves tape and disk backup. “It’s not an incremental step,” he says. “It’s something we wanted to do from the start.”

Diligent’s current products are Virtual Tape Facility (VTF) Mainframe and VTF Open. The mainframe product is the software EMC sells as CopyCross. Kempel says Diligent has 80 customers and has made good headway selling to large financial services firms, but that alone would not have pulled in $22 million. The bulk of the funding is based on Diligent’s little secret, and the company’s success will depend on how the product looks under the light of day. It won't be easy: the disk-backup and restore market is already crowded and still attracting new players, including Microsoft (see Microsoft's Recovery Plan).

— Dave Raffo, Senior Editor, Byte and Switch