Arsenal Restocks Its Coffers

Storage management services firm Arsenal Digital Solutions Worldwide Inc. has locked and loaded $10.5 million in fourth-round funding, with which it plans to broaden its disaster-recovery offerings for large enterprises (see Arsenal Stashes $10.5M Round).

Investors in the round, which brings the company's total funding to more than $63 million, include Covestco, Southeast Interactive Technology Funds, and Southern Cross Capital.

Frank Brick, Arsenal's president and CEO, says the Cary, N.C.-based company was already on track to be cash-flow positive in 2003 but sought additional capital to "roll out a little bit more aggressive plans" -- which include introducing new business-continuity services and signing up more channel partners.

In the second quarter of this year, Arsenal plans to introduce a suite of three additional services for disk replication, disk vaulting, and business continuity.

"Historically, we've been focused on providing storage management services in hosted IDC [Internet data center] environments," Brick says. "The services we're going to be launching in Q2 will be for storage not hosted in data centers." For example, he says, for customers that have only one data center, Arsenal plans to offer data mirroring services to an off-site "hardened" facility so they always have a second copy available for fast restore.Brick, who joined the company in April 2002, expects Arsenal to double its annual revenue this year, following a similar growth trajectory it saw last year. (The privately held company does not disclose revenues.) He plans to increase headcount from the current 70 employees to around 90 at the end of 2003 (see Arsenal Brings in Brick).

Arsenal, founded in August 1998, appears to be back on track after expanding too rapidly in mid-2000 and being forced to lay off nearly two thirds of its workforce two years ago (see Arsenal Loads $23M).

The company provides storage management services to 700 companies that have storage hosted in one of 22 data centers. It doesn't have any direct customers; rather, it sells through partners that include AT&T Corp. (NYSE: T), NTT/Verio Inc., Metromedia Fiber Network Inc.(MFN) (Nasdaq: MFNX), and Accenture. For this reason, Brick wouldn't tell us the names of any of Arsenal's clients. "Since we're in fact wholesaling through our partners, they'd prefer us not to name them," he says. But he's happy to list off descriptions of customers, which he claims include a large global telecom, one of the largest accounting firms in the U.S., a large auto manufacturer, and a large hotel chain.

We'll have to take his word that Arsenal has a healthy stockpile of customer accounts. But bear in mind that its investors just injected another $10.5 million into the company, and Arsenal presumably gave them a bit more evidence of customer traction than it gave us.

Arsenal's funding comes amid a rash of investment in data backup service providers -- a segment that has turned out to be the only part of the storage service provider (SSP) market that has actually panned out. Companies in this area that have recently landed funding include ManagedStorage International Inc. (MSI), LiveVault Corp., and EVault Inc. (see MSI Springs on $22M, Startups Tap VC Reserves, LiveVault Locks in $10M Series B, and EVault Raises $6M Series C).So how has Arsenal managed to avoid the fate of other SSPs -- such as StorageNetworks Inc. (Nasdaq: STOR) -- which either chucked the business model or got sucked under the waves? (See StorageNetworks Seeks Buyer, StorageNetworks Hacks Self in Half, Storability Finesses $12M Round, C&W Acquires StorageWay Cheap, and Scale Eight Smells the Software.)

Brick says that, whereas traditional SSPs focused on primary infrastructure providers, Arsenal and its ilk focused on backup and restore services. That allowed the company to invest one tenth the capital upfront that SSPs did in each data center, he claims.

"In many of the data centers we are in, we saw the huge Symmetrix boxes that StorageNetworks installed," says Brick. "Where they put $3 million into a data center... we may have invested $300,000."

In other news, Arsenal has promoted Randy Whitehead, who was executive VP of operations, to COO. Before joining Arsenal, he was with Storage Technology Corp. (StorageTek) (NYSE: STK); he has also worked for AT&T, British Telecommunications plc (BT) (NYSE: BTY; London: BTA), and IBM Corp. (NYSE: IBM).

The company has also hired Dan Lewis as its chief commercial officer, responsible for growth strategies, expanding channels, product management, and Arsenal's new business-continuity offerings. Lewis, who was previously VP of product management for Cable & Wireless's (NYSE: CWP) now-defunct application service provider venture, will officially start on April 1.— Todd Spangler, US Editor, Byte and Switch