Venture firm invests $5.5 million in TeraCloud

NW Venture Associates invests in Bellevue maker of
software

Northwest Venture Associates and another venture
capital firm have invested $5.5 million in TeraCloud
Corp., a Bellevue maker of storage resource
management software.

Bert Caldwell
Spokesman-Review Staff writer

The funding is the first institutional investment for
TeraCloud, which spokeswoman Erin Krause said
has been profitable since its founding 11 years ago.

Northwest Venture, with $190 million under
management, was founded in Spokane and has
offices here and in Seattle.

Boulder (Colo.) Ventures was the lead investor in the
funding, which was arranged through a
Seattle-based investment bank, Cascadia Capital.
Boulder has $231 million under management.

Krause would not discuss TeraCloud revenues, but
noted the industry is expected to grow at a 22
percent annual rate, reaching $1.3 billion in sales
next year.

Competitors include Computer Associates, EMC and
BMC Software.

Storage resource management software allows
companies to make the most of their data, and
storage capacity. TeraCloud markets its solutions as
SpaceNet.

"SpaceNet provides fast payback to large
companies," said TeraCloud Chief Executive Officer
Doug Ebstyne. "The funds will be used to expand
TeraCloud’s sale, marketing and development
teams."

Todd Jaquez-Fissouri of Boulder and Mark Mecham,
general partner of Northwest, will join the board of
TeraCloud.

•Business writer Bert Caldwell can be reached at
(509) 459-5450 or by e-mail at
[email protected]

http://www.spokesmanreview.com/news-story.asp?date=051802&ID=s1149770&cat=section.business

Venture Capital: Many could profit from TeraCloud’s
example

Friday, May 17, 2002

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

Doug Ebstyne, chief executive of Bellevue-based TeraCloud,
had some muscle in his corner when he started raising
venture capital late last year.

The 11-year-old software company boasted 10 years of profits, a customer list
that included 18 percent of the Fortune 1000 and a founding executive team who
understood the value of building a business the old-fashioned way.

Those factors certainly assisted Ebstyne on his venture capital quest. TeraCloud,
which helps companies such as Boeing, Merrill Lynch and IBM manage data
storage, plans to announce $5.5 million in venture financing today. It is the first
time the company, formerly known as Trilogy Software, has raised outside
capital.

"It is a wonderful story for the times because there is a paradigm change going
on," said Ebstyne, commenting on why TeraCloud caught the eye of venture
firms. "In general, I think we stood out."

It is a new breed of company that is attracting venture capital these days.

Experienced management teams and profitability are in.

Twenty-something CEOs and concept companies are out.

Entrepreneurs, who only two years ago were encouraged to spend money to get
big fast, are starting to adapt to the changing mind-set.

At the WSA Investment Forum this week in Seattle, nearly all of the 15
presenters stressed their companies’ ability to attract top-tier customers and
generate revenues. A few talked about near-term profitability. Others emphasized
experienced management teams who had sold or taken companies public before.

Wavelink CEO David Bullis showed a slide with the logos of The Gap, Costco,
Office Depot and other companies who are using Wavelink’s wireless networking
software.

"Our 10-year experience has allowed us to develop a broad and deep customer
base," Bullis told the crowd. He then went on to say that the company, with 5,000
customers in 50 countries, is just three quarters away from profitability.

O. Shannon Hauser, CEO of Mercer Island-based Returns Online, played up his
company’s experience by focusing on the age of executives.

"We say we are gray hairs and no hairs," said Hauser, whose company uses
technology to manage product returns. "The average age of our executive team is
57 or 58."

Translation Technologies Inc., a 4-year-old Spokane software start-up, also was
stressing profits, revenues and experience.

"I couldn’t succeed in the dot-com world, because I couldn’t figure out how to lose
money," said Frederic Zucker, co-founder and CEO of Translation Technologies.
"We have a company that is geared toward making money."

The veteran executive, who previously worked at Pitney Bowes, said he is happy
that business fundamentals are returning in the high-tech sector.

"People have come back to the traditional measures of a company’s success,
that is revenue growth and profitability, as opposed to how long an eyeball sticks
on a Web page," said Zucker, who expects his 30-person company to reach
profitability in the next 12 months. "Our company was designed from the bottom
up to deliver those two measures."

Ebstyne, who took over the top post at TeraCloud two years ago, said he met
with more than three dozen venture capitalists during the six-month funding
process. Most were pleasantly surprised to find a company that, despite last
year’s losses, had delivered 10 years of profits. They also were excited about the
existing customer base, he said.

TeraCloud, which historically served the mainframe storage market, released a
new product in December called SpaceNet that works with all networking
infrastructures. Because the company used internal profits to fund the product,
Ebstyne says "we have really taken a lot of risk away from the investors."

That impressed Todd Jaquez-Fissori, associate partner at Boulder Ventures, who
led TeraCloud’s $5.5 million round. But he was equally impressed with the
bootstrap mentality the company developed during the past 11 years. That’s a
quality he said venture capitalists are trying to discover in other start-ups.

"Historically, over the last 20 years, VCs liked to see start-up companies where
people poured their heart and soul into it and bootstrapped it," he said. "When a
company is bootstrapped, it shows what they can do with very little resources." A
small injection of capital then can provide extra firepower to attack an emerging
market, he said.

One of the challenges that TeraCloud faces now that it has raised money is
keeping the bootstrap culture in place as it moves in a new direction, adds people
and starts selling its SpaceNet product to existing customers using the older
product.

But Ebstyne said raising money was necessary to go up against some of the
"800-pound gorillas" in the storage software market.

"The window of opportunity is wide at the moment, but it will close," he said. "It
takes an investment. Our choice would be to grow very slowly and have an
unimportant market share or get an infusion at the right time and have an
opportunity to be the market leader."

After 11 years, TeraCloud decided to take the leap.

http://seattlepi.nwsource.com/venture/70778_vc17.shtml