Terascala Raises $500K, Gears Up for Series B—and Shift to Storage Software Business

Terascala, an Avon, MA-based maker of high-capacity data storage systems, popped up on our radar this week when an SEC filing revealed the company had raised $500,000 in options and warrants-based funding, out of a round that could total $2 million.

The company, founded in 2005, has transitioned from a hybrid business selling both computing and data storage hardware, to one focused entirely on the storage side of the business. Its data storage “appliances” consist of storage servers and the software required to run the device. And the focus on storage is just the beginning of the firm’s strategy shift.

“I’m excited because I think we’re going to become a software company,” says CEO Steve Butler. Terascala will be selling its storage appliance software separately to original equipment manufacturers, to combine with their existing hardware to create their own high-performance data storage systems, says Butler, who joined the company in June.

Boston-based firm Ascent Venture Partners has served as the sole institutional investor in Terascala, says Ascent partner Matt Fates, who serves on Terascala’s board. The new money comes as a bridge financing, as Terascala is working on raising its Series B round, which Butler says the company expects to close in the fall. Fates says Ascent is seeking additional VCs to partner with on the Terascala financing, which will go toward expanding the company’s sales and marketing efforts.

Terascala currently has about a dozen customers, which are typically science or technology companies or research houses, Butler says. The company’s data storage appliances serve companies and organizations that need to process vast amounts of information, for tasks like simulating environments for their products, he says. For example, the National Renewable Energy Laboratory in Colorado uses the Terascala system for its work in modeling solar cell technology, Butler says. And unlike devices that store data separately and statically, the Terascala system allows users to access the information they need while simultaneously running the modeling applications, a process Terascala dubs “parallel storage.”

The company’s technology is also used for data mining applications at large corporations, which are looking to sources such as e-mail or video surveillance to gather intelligence on things like company security and compliance. The Terascala system can help the company quickly process that information on hundreds of thousands of employees, Butler says. “It’s all about a company being more efficient to get more information to better run your business on,” he says.

Much of Terascala’s founding team comes from Network Engines (NASDAQ: NENG), a maker of technologies to better help software developers run their applications. They wanted to bring the same plug-and-play nature of the Network Engines technology to data storage, and built the Terascala appliances on an existing open-source parallel file system called Lustre, Butler says.

Last month, the company announced a partnership with Dell, in which the Texas-based computer maker will be shipping storage systems for high-performance computing, built with Terascala’s technology. The machines are targeted toward higher education customers and other research environments.

Butler sees future business opportunities for Terascala in the large number of organizations that are shifting to virtualization computing models. (Yesterday, Greg profiled a company working on the virtualization of data management: Waltham, MA-based Actifio.) Because more data centers are running on a virtualization infrastructure, functions like data storage are sharing space with other applications, he says. Even companies processing smaller amounts of data than Terascala’s typical customer may need the additional external data storage if they’re virtualizing their processes.

“They’re going to get kicked into this and will need more high-performance storage,” says Butler. This new arena of usage, combined with Terascala’s future shift to selling its software separately, could help the company get the sales boost it is looking for to grow.

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