Active Reasoning Racks Up $11.5M

Data center software startup Active Reasoning Inc. has snapped up $11.5 million in Series B funding as it expands its efforts to help firms tackle the Sarbanes-Oxley Act (SOA).

The round, which was led by InterWest Partners, also included existing investors ArrowPath Venture Capital, ComVentures, and Onset Ventures. This influx doubles the total amount of funding received by Active Reasoning. It follows a Series A round in October 2002 and some additional money just over a year later.

The Palo Alto, Calif.-based firm sells software that provides information on the extent of firms SOA-compliance. Essentially, these products monitor changes to the underlying infrastructure of firms’ specific applications and compile data that can then be passed on to auditors.

The SOA, passed in response to the scandals at Enron, WorldCom, et al, requires company managers to attest that they have established -- and continue to maintain -- internal control over their company’s financial reporting (see Gartner: Sarbanes Struggle Continues).

”We are saying that we can automate the data collection for you,” says Randy Brasche, Active Reasoning’s director of product marketing. “Compliance has taken a big pop over the last few months or so.”So much so that the 60-employee software vendor is going on a recruitment drive. “We need to expand our footprint in the marketplace with more sales and marketing and more engineering people,” says Brasche.

This is likely to see Active Reasoning double its 10-strong sales force and add another 10 bodies to its 35-strong engineering team, he adds.

On the product side, the company has new process control software up its sleeve. This could, for example, prevent users from making changes to systems such as servers, in line with specific security and operational policies. Brasche explains that the product is currently in pre-beta test at Active Reasoning and is likely to be unveiled in the second half of 2005.

Active Reasoning was founded back in October 2002 by Marv Tseu, who is now the company’s CEO, and Chris Whitney, who is now Active Reasoning’s CTO. Prior to Active Reasoning, Tseu was co-founder of services firm SiteSmith, which was eventually acquired for $1.4 billion by Metromedia Fiber Network. Whitney was formerly the vice president for managed service development at Cable & Wireless plc (NYSE: CWP).

Regulatory compliance is a sensitive subject and Brasche is not too keen to divulge the identities of Active Reasoning’s customer base. Nonetheless, he did confirm that the company has so far racked up half a dozen customers, and he claims another dozen are in the pipeline.However, Active Reasoning is not the only company focused on the compliance issue. Lindon, Utah-based vendor Altiris Inc. (Nasdaq: ATRS) completed a successful IPO in 2002, which proves just how hot this area is.

So, what about a Series C round? “Right now we’re hoping to be cashflow positive by the end of 2005,” says Brasche. “If everything goes according to plan, we’re hoping not to have to go for another round.”

Active Reasoning has already started work on building out its product portfolio, announcing automated features for Microsoft Corp.’s (Nasdaq: MSFT) Windows Active Directory (see Active Reasoning Expands Compliance ).

— James Rogers, Site Editor, Next-Gen Data Center Forum