Skipping VCs, Cloud Storage Firm Wasabi Grabs $68M to Eat Amazon's Lunch

Wasabi Technologies’ ambitious plan to challenge the giants in cloud data storage—Amazon, Google, Microsoft, and IBM—just got a $68 million boost.

Wasabi announced Wednesday it closed its Series B round of venture funding. The Boston-based startup had previously raised at least $8.5 million from investors, who are betting that it can build a big business with a cloud-based “object” storage service that Wasabi claims is markedly faster and cheaper than competing products. The company markets itself as “the hot cloud storage company”—hence why it named itself after a spicy Japanese food.

Wasabi claims its business has gotten off to a fast start. Since launching its service just over a year ago, it has racked up more than 3,000 customers in media and entertainment, healthcare and genomics research, video surveillance, and education—sectors that store reams of data and need to access it quickly, the company says. Demand from overseas customers is growing, including in Asia and Europe, a region that accounts for nearly 20 percent of Wasabi’s revenues, the company says.

One of the challenges now will be scaling to handle increased demand. To that end, Wasabi says it’s ramping up its data storage capacity. It already rents space in two data centers in the U.S., and it plans to add space in Europe in the fall, CEO and co-founder David Friend (pictured above) says in a phone interview. The 40-person company also plans to hire another 15 or 20 people this year, mostly in sales and marketing, he says.

Although Wasabi wants to build a cloud storage business that rivals those of much bigger competitors, Friend says right now the company isn’t actively trying to lure customers away from the likes of Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and IBM (NYSE: IBM). In many cases, he says, businesses buying cloud storage from those companies probably made the shift from on-premise data storage to cloud-based storage in the last two years or so, and they’re probably not looking to move all their data to another vendor any time soon. Rather, Wasabi is targeting businesses and organizations that haven’t switched to cloud storage yet. Friend says there are still a lot of potential customers in that category, and it’s a bigger market opportunity.

“People will migrate from Amazon to Wasabi when the storage costs start to become painful,” Friend says. “But they know about us, and they’ll do it on their own speed. I don’t need to go chase those guys.”

The bigger picture is that Wasabi and other startups see room to challenge the tech giants in cloud infrastructure by focusing on one area and trying to deliver better, and cheaper, products and services. Rather than hire one big vendor to handle tasks such as cloud storage, cloud computing, and content delivery, Friend argues more companies will turn to smaller firms such as Wasabi for storage, Packet for cloud computing, and Fastly for content delivery. It’s hard to imagine startups unseating the bigger players any time soon, but investors think they have a shot. Packet raised a $25 million funding round this week, and Fastly hauled in a $40 million round in July.

It’s notable that Wasabi has raised so much money without turning to traditional venture capital firms. Wasabi says its backers are family offices and wealthy individuals. Among them are Friend and Wasabi co-founder Jeff Flowers, who together have now created six companies, including cloud backup and data protection firm Carbonite (NASDAQ: CARB). The only other Wasabi investor that has been made public is Forestay Capital, the tech fund of Swiss entrepreneur Ernesto Bertarelli.

Friend says he didn’t need to raise money from VCs this time. Backers of his past companies and other people in his network wanted to invest, and he says Wasabi had to “turn people away.”

Friend thinks Wasabi is better off without VCs, whom he says can be “arrogant” and push their portfolio companies to sell the business faster than the management team wants. Venture capitalists often tout their industry connections, but “frequently don’t deliver,” Friend argues.

“I started dealing with these family offices, and these people are better connected at the enterprise level than any of the VCs I’ve ever met,” he says. “If we want to sell a ton of storage to Disney or CBS or big government labs and things like that … I can find entrees to practically everything.”

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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