OVP Invests $1.5M in Cloud Data Storage Startup, Symform

4/27/09Follow @gthuang

Seattle-based Symform, a small company that provides data storage and backup in the Internet cloud, is announcing today a $1.5 million Series A financing from OVP Venture Partners in Kirkland, WA. This is the first new investment OVP has announced this year; the firm made six follow-on investments last quarter. Managing directors Mark Ashida and Lucinda Stewart are joining Symform’s board.

As for Symform, the young startup we profiled back in February, it’s a significant step forward. The company was founded in late 2007 by ex-Microsoft veterans Praerit Garg and Bassam Tabbara, and has been developing its product for the past year and a half. The idea is to sell an online data backup service to small and medium-sized businesses, and make it cheaper and faster than other available services. As OVP’s Ashida puts it, “Symform is a broker of storage that’s on many different people’s disks. It has very good security. The key is you’re not uploading to one site, you’re uploading to 100 sites. There’s no choke point. And when you want to recover the data, you’re downloading from many. They also have this incredible cost advantage.”

But what did it take to get Symform funded, especially in the current climate? It turns out Ashida knew Garg from their Microsoft days together, five or six years ago. “Praerit’s group [at Microsoft] came up with a really innovative way to manage servers,” Ashida says. “A lot of things he was working on were some of the most innovative things Microsoft was doing.” The two started talking about Symform about a year ago, Ashida says. “I met with him every couple months. They kept evolving their idea, which was a really good sign.”

As Ashida explains it, Symform started out as a consumer idea—to sell data storage to individuals instead of businesses. “I said, ‘Your roots are all in enterprise. What credibility do you have for a consumer product? Why are you doing this when you have tremendous roots, 12 years experience, in enterprise?’” So, a month or two ago, Garg came back with a pitch for business customers, and that did the trick. “It went from a good idea to approval inside OVP within two weeks,” says Ashida.

“The money is only one part of the story,” Garg says. “You get someone like [Ashida and Stewart on the team] effectively for free. OVP, given their reputation, brings a certain amount of formal capability to the company. I’ll call this maturing of the company. It’s the next phase. Getting money also means we can hire a set of people.” Indeed, Garg says Symform is in the process of expanding the management team and hiring a couple more engineers.

Meantime, the company has doubled its partner base from 17 to 35 distributors across the U.S. These are small-business IT consultants who will sell Symform’s product along with their other managed services to corporate customers. Symform is currently in public beta trials—its new website has gone live today—and it is doing a pre-launch of its core product on May 1, while it gears up for a full release later this year.

Another development is that one of Symform’s main competitors (at least technology-wise), Swiss-based Wuala, was acquired last month by French network storage manufacturer LaCie. “It’s a great validation for us,” Garg says. “We’re actually hoping LaCie will come out with a device with Wuala software on it.” That would mean that down the road, say in a year or two, Symform could move into partnering with big manufacturers like LaCie, Buffalo Technology, and Netgear, to put its software on their storage devices. For now, though, Symform is focused on getting small to medium-sized businesses (fewer than 1,000 employees, say) signed up through its distribution partners.

Lastly, Ashida added a fair bit of perspective on the investment strategy. “Software exits are not going to be as high as they used to be. Companies need to have a different kind of economics,” he says. “Symform can get to break-even pretty quickly. They can keep costs low. We don’t have to invest a lot of money, and they don’t have to give up a lot of the company.”

“A joke is that VCs always want to know how big the market is,” Ashida says. “The reality is when you actually get to the market with a product, the actual addressable market is much smaller. You can only sell to 30 percent of them, say. Then you realize there’s a competitor, and you’re down to 15 percent…So we always like to start big. In this case, there are so many millions of businesses that don’t back up [data] at all. Companies that actually have a catastrophic failure and they didn’t back up—they’re often out of business in a month. I’m sure as we get closer to the market, we’ll find there are some people we can’t reach.”

Which is why the startup’s founding team is so important, of course. “As you get closer to the market, you have to maneuver,” Ashida says. “That takes a great deal of flexibility. We can adapt our product to the reality. Very few startups end up doing what they started off doing. So you need a team with mental horsepower and flexibility.”

Ashida just got back from Silicon Valley with a new appreciation for the challenges his companies face. “It’s pretty clear a lot of companies down there need a lot of money. They’re having a really really hard time these days. Some had valuations around $50-60 million, and they’ll be lucky to get $20 million,” he says. “I think there’s a new reality out there. I don’t think things are going to go back. With Symform, let’s hope to do it with less money, and still be successful. As investors, we could end up doing twice as many [smaller] deals. The teams themselves have to be better. If we’re dealing with more companies, we can’t spend as much time with each.”

None of this seems to be tainting Garg and Tabbara’s startup experience. “It’s been amazing,” Garg says. “I continue to learn every day. I spent the first year unlearning everything I learned at Microsoft, and learned a new set of tools and skills. We both feel really fortunate that we took the chance, and it’s actually panning out.”

As for his thoughts on the hardship of fundraising, Garg says, “People are saying, ‘Oh, you have to spend all this time raising money.’ My experience is you spend time making the business real, then people will want to invest. I don’t want to spend any time raising money…At our OVP meeting, Mark said, ‘You’re ready to be funded.’ And Chad [Waite] said to us, ‘If you’re talking to anyone else, you can stop right now.’”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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