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Sepaton gets funding, looks to add replication, disaster recovery to deduplication

Sepaton closed a $15.5 million funding round, and CEO Mike Worhach says the VTL vendor is preparing to add replication to its data deduplication capabilities for disaster recovery.

The smart money is on data deduplication these days, and virtual tape library (VTL) pioneer Sepaton Inc. just closed a $15.5 million funding round to help fuel growth of its VTLs with deduplication.

Sepaton's funding comes in the wake of Quantum Corp. securing a $100 million loan from its deduplication OEM partner EMC Corp., and primary deduplication vendor Ocarina Networks getting $20 million in funding.

Sepaton CEO Mike Worhach said his company's sales spiked in the second half of last year after getting its DeltaStor software out following some delays. We spoke in depth with Worhach about Sepaton's plans following the funding round, and where he sees disk-backup and data deduplication heading.

SearchDataBackup: How hard was it to raise funding this time around?

Mike Worhach: Our round closed quickly. They say the best time to raise money is when you don't need it, and we just came off a strong second half. Our business doubled from the first half to the second half. People are starting to realize we have a differentiated architecture. We're happy to have Focus Ventures come on along with our other investors Jerusalem Venture Partners (JVP), Menlo Ventures, Valhalla Partners, and HarbourVest Partners all participated. Focus is a growth fund, they invest in late stage companies.

The next phase will be deduplication with replication for DR and remote offices. Down the road, you can see the convergence of backup data with archive data becoming a single-point solution.
Mike Worhach

SearchDataBackup: So why take more funding if you don't need it?

Worhach: We were profitable in the fourth quarter. But with the economic downturn, people are uncertain about when it will improve, so there's nothing wrong with bringing additional money in.

SearchDataBackup: Data deduplication is a hot technology now. How important of a selling point is your DeltaStor deduplication?

Worhach: The first problem people have is they can't get that backup window completed in time. When they start to scale, that's when deduplication kicks in. It took us a long time to get deduplication right, we have a lot of complexity dealing with high-volume environments.

Among new customers, we have a handful of just pure VTL opportunities but more than 90 percent of our opportunities are for VTL plus deduplication. The next phase will be deduplication with replication for disaster recovery and remote offices, where in the past we were limited. And down the road, you can see the convergence of backup data with archive data becoming a single-point solution.

SearchDataBackup: Are you seeing other buying trends in backup now?

Worhach: VTL-enabled backup is coming back in favor. There's too much investment in a tape infrastructure. Large, sophisticated enterprise accounts like VTL implementations. We're also seeing that our customers are getting bigger. Our average selling price was $360,000 in the fourth quarter.

SearchDataBackup: Are you seeing a lot more competition among virtual tape library and other backup vendors with dedupe?

Worhach: We compete in the enterprise data center space, and EMC is most dominant there. They can have an inferior solution and still be competitive because they have mindshare. So we see them the most. We also see NetApp. We haven't seen much of IBM/Diligent. We don't see Data Domain as being in the market we're in. They're strong in the midrange and they keep talking about moving into the enterprise, but I think they're definition of the enterprise is different than ours. We're data center focused.

SearchDataBackup: How much has your OEM deal with Hewlett-Packard (HP) helped?

Worhach: The first three years of our OEM deal, HP didn't have an enterprise product. Now with the VLS 6000, they have an enterprise product with deduplication. They've been successful out of the gate with it. And we have additional opportunities to work with OEMs down the road. We're one of the only guys that can scale to the volumes we do.

SearchDataBackup: You said you were profitable in the fourth quarter of last year. What about the first quarter of 2009?

Worhach: We hit our plan for the quarter, but I don't know about profitability yet. The quarter just ended [March 31].

SearchDataBackup: A lot of technology companies had layoffs, furloughs and salary cuts because of the economy since the end of 2008. Has Sepaton had to take any of those cost-cutting measures?

Worhach: We had slight reductions after last June, but no drastic cuts. We picked up some outstanding people because there are some strong people on the street looking for jobs. Our head count is 132 and we have our foot over the gas pedal. As soon as we see signs that people will start spending again, we'll get aggressive. We have the money in the bank.

SearchDataBackup: Even if you're successful, what's the next step for a company like Sepaton? There's not much of an IPO market these days.

Worhach: We had two banks in here the other day, talking about different things you can do. No one knows when [the recession] will end. We can get out of this thing a bigger, stronger company. People in the venture world have to make tough decisions on what to do with companies who don't have proper balance sheets. We don't have to do that.

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