NeoScale Secures $12M

Security appliance startup NeoScale Systems Inc.

today filled its coffers with $12 million in venture funding, a reflection of the increased role security is playing in storage networking.

Recent news is full of examples: Symantec Corp.s (Nasdaq: SYMC) $13.5 billion acquisition of Veritas Software Corp. (Nasdaq: VRTS) in December came in recognition of the need to combine storage and security (see Wedding of the Year and Symantec & Veritas: It's a Deal).

Then the fear factor kicked in last month with news of storage security breaches that have Congress considering federal legislation to punish companies that compromise personal information. ChoicePoint Inc., which stores credential verification information, admitted hackers may have gained access to the personal information of about 145,000 customers (see Regulators Raise Security Bar). The company estimates the breach could cost it $20 million in revenue this year. Also, Bank of America revealed it lost digital tapes containing the credit card account records of 1.2 million federal employees.

NeoScale was neck deep into its funding round when all that news broke, and it certainly didn’t hurt. “This has been in the works for awhile, but the timing is obviously perfect for us,” NeoScale Marketing VP Dore Rosenblum gleefully observes.

The startup landed a new lead investor, Advanced Technology Ventures (ATV), and retained previous investors Bay Partners, Lightspeed Venture Partners, and Sevin Rosen Funds.NeoScale’s total funding stands at $43 million, and its executives say the money will take the company to cashflow positive next year. Rosenblum says NeoScale will use it to beef up its international presence and add direct sales assistance for its channel partners.

Where exactly does NeoScale fit into the security picture? Like its main rivals Decru Inc. and Vormetric Inc., NeoScale sells appliances to protect data on disk and tape.

NeoScale launched a new tape appliance in February that secures data as it goes between the server and tape drive (see NeoScale Adds Tape Security). The appliance compresses, encrypts, and digitally signs data as it goes to tape or virtual tape. The idea is to prevent the type of breach that slammed Bank of America.

NeoScale also has an encryption appliance for Fibre Channel disk and a SAN VPN that protects data across metro-area networks (see Startup Blends VPNs, SANs and NeoScale Ships SAN Security).

While NeoScale talks of getting cashflow positive next year, there’s a chance it won’t get that far on its own. The Symantec-Veritas merger generated speculation that Symantec will add an appliance security vendor to its portfolio next. At least one industry source, Jon Oltsik of The Enterprise Storage Group Inc., has suggested NeoScale, along with Decru and Vormetric, as possible candidates.— Dave Raffo, Senior Editor, Byte and Switch