Zantaz Zips Up $20M

Zantaz Inc., one of a tiny but growing handful of companies offering storage management services to help firms deal with securities regulations, has $20 million in new funding (see Zantaz Scores $20M).

Zantaz will use the cash to help it expand this year, possibly through acquisitions and partnerships. The input brings the company's total funding to $90 million -- $70 million of which was secured in five rounds of funding since the company's founding in 1996.

The news is interesting on several fronts. First, it's a big round and it's an "up" round, meaning the company's valuation has increased over the last several years -- though no one's naming figures. In contrast, many firms funded circa 2000, the "pre-bubble era," wound up taking later "down" funding rounds in which lowered valuations slashed the overall equity value.

Today's announcement also points to the growing impact of regulations on corporate storage plans. New rules from the Securities and Exchange Commission (SEC), New York Stock Exchange, and NASD are forcing firms to find ways of sifting and archiving email and even instant messages related to key transactions (see IM Gets Regulated). For many, outsourcing may be preferable to finding personnel and products to bring such a hefty, complicated task in house.

"The last twelve months increased market focus... There's more pressure to have a plan around archiving email and having it available," says Doug Chandler, program director of storage and data management services at IDC. Zantaz and competitor Iron Mountain Inc., he says, are among the few providers with an outsourced solution.And business seems to be good. Zantaz spokespeople say the company's customer base grew 300 percent in 2003 and the firm has increased its employee census from 90 to about 130 since 2002. "We have two billion messages under management and 120 terabytes captured," boasts CEO Steve King.

So what's not to love? One possible downside is the sheer weight a deal like this gives to key investors. While details of the ownership terms between Zantaz and General Atlantic Partners LLC, the lead investor in the funding, are undisclosed, it would be surprising if the company hadn't ceded a hefty chunk of ownership, not to mention corporate governance. Two of General Atlantic's partners are joining the Zantaz board.

Then there are the usual market worries. King acknowledges the biggest challenge facing Zantaz may be one of perception. Zantaz claims it can save companies up to 50 percent on the cost and hassle of a homegrown solution; but some firms won't put corporate data outside the firewall -- and that's a deal-breaker, since Zantaz uses offsite facilities in its services.

There's also a growing roster of competitors getting into the act, with products that purport to make in-house archiving more do-able than ever before -- including the likes of EMC Corp. (NYSE: EMC) and Network Appliance Inc. (Nasdaq: NTAP). That's not likely to make life easier for service providers.

[Ed. note: And then there's the name that sounds like an antidepressant... which may, of course, work in its favor.]On the upside, Zantaz is fortified with partnerships, which drive the world of storage services -- even though they seem to result in more contentious pair-offs than a high-school dance. IDC's Chandler says one in particular, Zantaz's relationship with IBM Corp. (NYSE: IBM), in place for the last eighteen months, could be pivotal to the company's future. "If the partnership with IBM plays out, prices for service could come down substantially," Chandler asserts. That could help Zantaz as it battles in-house solutions for mindshare.

The new round could help in this regard, too. King acknowledges that General Atlantic Partners has several portfolio companies with enticing prospects. Though he's not naming any, General Atlantic Partners' Website raises some intriguing possibilities: The firm has a surplus of IT services firms in its roster, including one, Computershare, that specializes in serving the securities industry.

If things work out, the potential synergies could easily balance out any concessions Zantaz may have made to its lead investor.

Mary Jander, Site Editor, Byte and Switch