Funding Time for FaceTime

FaceTime Communications Inc. is getting more facetime with customers and venture capitalists, thanks to federal rules requiring companies to archive instant messages.

The IM archive software startup claims the rules have propelled it to 350 customers, and today the company announced a $16 million third round of funding. JK&B Capitalled the round with participation from previous investors BA Ventures, LLC, Sutter Hill Ventures, and TH Lee Putnam Ventures. FaceTime has raised $30 million since July 2001.

JK&B partner Tom Neustaetter joins the FaceTime board of directors, which already includes representatives from its other VC investors. "We've had our eye on the IM security and compliance market for some time," Neustaetter said.

FaceTime and its chief competitors, IMlogic Inc. and Akonix Systems Inc., received a big boost in June 2003 when the National Association of Securities Dealers Inc. (NASD) ruled that financial services companies must save all IM correspondence, as well as emails, for at least three years (see IM Gets Regulated). IM management software captures the IM stream and archives it as searchable, logical conversations. The software can also block messages containing certain words, or can highlight messages containing the words.

FaceTimes IM Auditor works with EMC Corp.'s (NYSE: EMC) Centera content addressed storage (CAS) system to let companies archive IMs. FaceTime also works with email archiving software from EMC Legato, KVS Inc., Zantaz Inc., and Iron Mountain Inc. (NYSE: IRM) (see FaceTime Extends Compliance Program).FaceTime CTO Jonathan Christensen says he expects more partnerships as storage vendors move to include IMs in their compliance and ILM iniatives. “There’s going to be a lot of active partnering,” he says.

Christensen says FaceTime will do active hiring as well. He forecasts the 115-person company will grow by about 15 to 25 over the next quarter, with the additions coming mostly in R&D and sales. FaceTime has a direct sales model, and is looking to expand in the U.K., India, and Asia-Pacific.

The company already expanded its development team in India by acquiring a development facility in Bangakore from Tumbleweed Communications earlier this year.

FaceTime appears well positioned, as a company in a growing market with its competition coming from other startups. But there’s the danger that compliance will be like Y2K – a quick big boom that abruptly ends after deadlines are met.

Christensen says FaceTime is banking on continued growth. “We see three types of organizations out there,” he says. “Some are saying they’re going to treat IMs just like email and use the same best practices for compliance. Others are treating IMs differently, but they’re still addressing them. A third group is ignoring them, but there’s not many in that third group.”— Dave Raffo, Senior Editor, Byte and Switch