Diligent Rides Data Protection to Riches

With an EMC pedigree and scores of customers, Diligent Technologies seems like a natural for attracting venture capital.

But what’s really surprising is why top VC names are willing to fork over $22 million to the company: to finance products that won’t begin to appear on the market until the middle of next year.

Diligent chairman and CEO Doron Kempel isn’t talking specifics about what the company has planned, but says that the company’s roadmap is so compelling that investors are buying into it sight unseen.

Arun Taneja, founder and consulting analyst at the Taneja Group, is one of the few who’s seen the details, and he isn’t talking.

“They have an exciting VTL [virtual tape library] product today, with additional cool technologies on the horizon that I am not at liberty to speak about,” Taneja says. “Enough to say they played a role in getting top-tier VCs like Matrix, Accel and Gemini to join the party. But as far as the current product goes, while the space is noisy, I think it stands up to scrutiny quite well. And the market is starting to move quite aggressively, and IT is beginning to buy D2D [disk-to-disk] products for production purposes.”

Diligent’s $22 million round was oversubscribed, and brings the company’s totally funding to $37 million. The round was led by Accel Partners and Matrix Partners, and Gemini Israel Funds also participated. Fearghal O’Riordain, principal at Accel, David Skok, general partner at Matrix, Adi Pundak Mintz, general partner at Gemini, and Moshe Yanai, one of Diligent’s initial investors, were named to the company’s board of directors.

“I am as excited and optimistic about Diligent’s technology roadmap and the mark they’ll make in data protection as I was when we revolutionized storage systems for the data center at EMC,” states Yanai, who invented EMC’s high-end Symmetrix platform.

Diligent was founded in June 2002, a spin-off of an EMC research and development unit based in Israel. That arrangement, says Kempel, gave the company a running start, with “40 engineers and a lot of talent.” EMC invested $5 million in the company, and Yanai $10 million.

Diligent says its enterprise-class virtual tape technology for mainframe and open system environments is implemented in more than 20% of the Fortune 500 financial services firms.

Pete Gerr, senior analyst at Enterprise Strategy Group, says Diligent is well positioned for the emerging backup market. ESG’s research, he says, shows that “enterprise and mid-tier accounts are actively evaluating and implementing disk-based data protection solutions to help them improve their ability to protect and recover their critical data more quickly or more cost-effectively. … We see many users implementing virtual tape solutions, specifically, for their ease-of-deployment, ease-of use, performance benefits, and also the fact that VTL doesn’t require administrators to reconfigure their backup processes or throw out their existing backup software.”

Gerr gives Diligent high marks for supporting both open systems and mainframes, and says the company’s products “deliver excellent performance and scalability. I think they have as good a chance as any emerging VTL vendor to have an excellent 2005, as more users turn to disk-based solutions, and VTL in particular, to ease their data protection challenges.”

As the market moves more and more to disk-based backup, Kempel says Diligent’s performance and reliability has the company well positioned. With a third of backup and restores failing to meet service-level agreements, there is plenty of room for the company’s vision, which he says “goes far beyond virtual tape.”

Kempel says the $22 million funding round will be the company’s last. Maybe.

“We will probably deviate from this roadmap only if we can’t resist developing new technologies,” he says.

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