GlassHouse Adds $20M

GlassHouse Technologies Inc. today grabbed a fourth round of funding worth $20 million, adding a new board member to help it get more feeding space at the homeland security trough.

Paladin Capital Group led the round, with GlassHouses previous investors kicking in to bring its total funding to $35 million since 2002. The money comes from Paladin’s Homeland Security Fund, which invests in companies whose products and services address U.S. government projects in that area.

Part of the deal includes GlassHouse adding Paladin principal Kenneth Minihan to its board. Minihan is a retired Air Force lieutenant general and former director of the National Security Agency intelligence group. Minihan said Paladin was attracted to GlassHouse because of its data protection and security services.

GlassHouse executives hope Minihan can help push business in its Washington office, which was set up a year ago to chase government contracts (see GlassHouse Opens New Office).

Indeed, GlassHouse execs are playing down the funding and focusing instead on the addition of Minihan. “It’s not about needing money,” GlassHouse chief marketing officer Jay Seaton says. “It’s about the leverage we can get working with Paladin to accelerate our government practice. We would expect to get their advice and guidance on how best to do business in that sector.”Homeland security is a good place to start. According to market research firm Input, the U.S. government awarded $103.3 billion in professional services contracts last year, and the Department of Homeland Security received more than any other civilian agency. For instance, Homeland Security received a $10 billion contract in 2004 to track all non-U.S. citizens who enter and leave the country.

GlassHouse isn’t the first storage startup to align itself with a prominent government figure in hopes of winning contracts. NAS vendor Isilon Systems started a Federal Advisory Board in December packed with four retired generals to pursue government business (see Isilon's Focused on Feds). At the same time, it appointed former acting FBI director and founding Environmental Protection Agency administrator William Ruckelshaus to its board. Encryption appliance vendor Decru Inc. last June hired Carl Wright, former Chief Information Security Officer of the Marine Corps, as vice president of federal operations (see Decru Adds VP of Federal Ops).

Seaton says GlassHouse has seven employees in Washington, and federal business makes up about 10 percent of the company’s revenue. He says the company will add people in Washington, but the rate of growth depends on how fast it picks up government contracts. GlassHouse won a five-year General Services Administration (GSA) schedule contract in October that allows civilian, defense, and other federal agencies to procure GlassHouse’s services (see GlassHouse Wins GSA Contract).

But not all of the new funding will go toward growing GlassHouse’s government business. Seaton says the 260-person company will expand throughout the U.S. and Europe. And considering GlassHouse’s track record, some growth could come through acquisitions.

GlassHouse's previous funding round was worth $7.1 million in October 2003, and CEO Mark Shirman claimed his company didn't need the money back then, too (see GlassHouse Gleans $7.1M). But GlassHouse has since made a series of small acquisitions that added headcount, customers, expertise, and a European presence.It bought four companies in 2004 -- healthcare consultant CycleBridge Technologies, U.K. consultant companies Source Consulting and Sagitta Performance Systems, and backup specialists The Storage Group (see GlassHouse Buys CycleBridge , and GlassHouse Adds a Wing). GlassHouse then picked up storage services provider Fortified Technologies last month.

Seaton says there are no imminent acquisitions, but he certainly won’t rule it out. “We always look for opportunities,” he says.

GlassHouse’s returning investors are Grandbanks Capital, Globespan Capital Partners, Kodiak Venture Partners, and Sigma Partners.

— Dave Raffo, Senior Editor, Byte and Switch