VCs Pump Up SSP, MSP Funding

By Lisa Coleman

Storage service provider (SSP) StorageWay and managed service provider (MSP) Storability received $42 million and $30 million, respectively, in venture capital funding last week. But analysts remain skeptical about their profitability.

Fremont, CA-based StorageWay received $42 million in equity investment for its third round of funding last week. Since its inception in October 1999, the company has raised $150 million in equity and lease financing. StorageWay will use the new funding for technology expansion. The company has more than 80 customers.

Southborough, MA-based Storability secured $30 million in its second round of funding. There are no plans for a third round of funding, says Kirby Wadsworth, vice president of marketing at Storability. The company plans to be profitable by 2002, according to Wadsworth. The funding will be used for further developing Storability's Assurent architecture, an automated enterprise storage management delivery system.

While the funding signals that some venture capitalists are confident in these service provider models, analysts have revised down their forecasts by almost $1 billion. The SSP marketplace is expected to grow from $176 million in 2000 to almost $7 billion by 2003, according to Gartner Dataquest, which originally predicted that the market would hit $8 billion by 2003. Reasons for the dip in dollars include drops in price per managed gigabyte, more cautious venture capitalists, Internet firms going out of business, and storage outsourcers failing to reach profitability quickly.

"It's a little ironic that both StorageWay and Storability received another round [of funding] almost simultaneously," says Adam Couture, senior analyst, IT services, Gartner Dataquest. "Obviously, both companies managed to convince their investors that they are at the cusp of profitability and that this one round will pull them through. However, if SSPs and storage MSPs can't get to profitability by 2002, it's doubtful that any of them will get another round."

This article was originally published on June 27, 2001