NSI Notches $15M

NSI Software,a data replication company targeting the Windows market, has announced $15 million in second-round funding to step up its marketing and R&D programs with its partners (see NSI Sucks Up $15M Round).

The round was led by ABS Ventures, with participation from existing investors Dell Computer Corp. (Nasdaq: DELL) and J&W Seligman & Co.. EMC Corp. (NYSE: EMC), which has previously invested in the company, did not participate in the round. The investment brings the total raised by NSI Software, since it was founded 11 years ago, to $65 million. ABS Capital's Laura L. Witt and Bobby Goswami will join NSI's board of directors.

Don Beeler, founder and CEO of NSI, says the company more than doubled its sales last year and is poised for significant growth in 2003. He expects the company to be cash-flow positive this year. "Our percentages are picking up because of the way we positioned the product," Beeler says. "Its geared towards the mass market for disaster recovery."

NSI says it has more than 5,000 customers and 16,000 working copies of its product, Double-Take, installed. Customers include Sundt Construction, Southwest Corporate Federal Credit Union, Antelope Valley Hospital in California, and Commercebank of Florida.

The question, then, is: If NSI is doing so well, why has it accepted funding at this point? "It is always the best time to bring in money when you don’t need it," says Beeler. "It was easy for us to articulate our message right now and for investors to understand the opportunities ahead of us."NSI has established a credible position in the Windows-based replication market, through reseller partnerships with Dell, EMC, Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Microsoft Corp. (Nasdaq: MSFT).

But in order to adapt its product to meet the needs of each of these partners, Beeler says the company needed more investment. "Our partners are pulling us into a major mass market, and we need to be ready," he says.

NSI is planning road tours and marketing campaigns around disaster recovery with all its partners, as well as focusing on specific features for each OEM. "We will be releasing a [Windows] .NET-compatible version of the software to coincide with Microsoft’s product launch later this year," Beeler says. Microsoft expects to launch Windows Server 2003 (formerly called Windows .NET Server) in April.

NSI apparently has over 20 patents, but fewer than half of these are actually used in its current software. New products are on the roadmap, but Beeler is keeping his cards close to his chest on any future directions the company might take.

It's hard to fathom how NSI, after 11 years in business, is still not making money. More than likely, it has been overshadowed by Veritas Software Corp. (Nasdaq: VRTS) and Legato Systems Inc. (Nasdaq: LGTO), the two dominant players in the backup software market.Beeler believes NSI’s time has come. "DR used to be a half-million-dollar expense," he says. "You had to change out storage or build a new network, which was a barrier to entry for smaller companies." The company's software costs an average of $3,000 per server, he says, allowing small-to-midsized businesses deploy disaster recovery.

The market for storage replication and backup software is expected to grow from $5.6 billion in 2002 to more than $9.2 billion by 2006, according to Bill North, research director for storage software at IDC