Sepaton Swigs $23.5M

Virtual tape startup Sepaton Inc. next week will announce a $23.5 million Series D funding round, with which CEO Mike Worhach plans to expand sales.

The round is Sepaton's fifth and is led by Menlo Ventures, with participation from new investor Valhalla Partners and previous investor Jerusalem Venture Partners (JVP). Sepaton has raised $53.6 million over four funding rounds.

Sepaton's backers are apparently impressed by the traction the Southborough, Mass.-based company has made since launching its first enterprise disk backup library and changing its name from SANgate Systems in December 2003.

The name Sepaton is no tapes” spelled backwards (see Sepaton's Got Virtual Tape and SANgate Tries Again), a reference to what Sepaton calls its virtual tape approach, which uses software to emulate tape libraries and formats so customers can perform backup-and-restore on disk the same way they are using tape now.

But Sepaton may justly be called Selason (“no sales”) outside of New England, where nearly all of the startup's 20 customers are based. CEO Worhach wants to use the new money to change that by adding sales staff in Atlanta, New York, and Chicago, and on the West Coast. He expects Sepaton to add 13 people by the end of June, bringing its headcount to 45. In addition, there will be some engineering help as well: Some of the new additions will be application developers in the company’s headquarters.Sepaton’s board of directors also is expanding, with the addition of Pravin Vazirani of Menlo Ventures and Hooks Johnston of Valhalla Partners. VC firm JVP already has two seats. At six total, the board now is twice the size it was before Egenera Inc. CEO Robert Dutkowsky became a director in February (see Former EMC Exec Joins Sepaton).

The board's collective goal is to take Sepaton to the next level. “We don’t plan to go back for more money,” Worhach says. “Talking to the board, the expectation is to manage us to an IPO, but if another opportunity comes along, we’ll look at that.”

Worhach says he hopes Sepaton will be profitable by mid-2005. Early customers include Harvard University, Northeastern University, and Waltham, Mass.-based biotechnology company Beyond Genomics (see Beyond Genomics Deploys Sepaton ). Worhach anticipates having more customers to announce soon -- as 10 are evaluating Sepaton’s enterprise virtual tape library system. What's more, the company plans to add a new drawing card in the form of a departmental appliance that scales in capacity from 3 terabytes to 6 terabytes.

Sepaton hardly has the virtual tape space to itself, though. Leading tape vendors Storage Technology Corp. (StorageTek) (NYSE: STK), Advanced Digital Information Corp. (Nasdaq: ADIC), and Quantum Corp. (NYSE: DSS) now offer disk backup products (see StorageTek Outlines ILM Roadmap, ADIC Banks on Disk and Quantum Upgrades Disk-Backup System). So do a host of startups (see MaXXan Unveils New Virtual Tape Systems, Copan Takes Aim at Tape, and ATA Is Where It's AT).

Vazirani of Menlo Ventures says Sepaton's edge is in its software and open architecture. "I definitely think it has the potential to go public," he says. "The disk-to-disk market with SATA technology is hitting the market with full force, and it's just at the beginiing. Sepaton's box is content-aware. It's not just a dumb box that you stuff with data. You can continue to add value thorugh software."Now the pressure is on Sepaton to live up to that expectation. Melborpon!

— Dave Raffo, Senior Editor, Byte and Switch