SkyDesk Looks to Greener Fields of PE

With the public markets spinning unpredictably, SkyDesk Inc. indefinitely postponed its initial public offering last week, replacing the lost capital with a $20 million Series C investment from wireless giants Qualcomm and Hikari Tsushin.

SkyDesk had filed for a $75 million IPO the week of March 10, but shelved its plans to tap the public equity markets until the Nasdaq stabilized, said Chief Financial Officer Dan Dearen. Qualcomm and Hikari then approached SkyDesk, a provider of data storage and protection solutions for small and medium sized businesses and individual computer users, with an unsolicited offer.

“We’re unsure of how a marketing or sales or development relationship might develop, but I can say the investment was not led by financial interests alone,” Dearen added.

Although 400 million wireless devices currently are in use worldwide, that number is expected to soar to one billion by 2003, according to the Gartner Group. By 2002, every wireless phone is expected to have access to the Internet with nearly half of all Internet access occurring through non-PC devices by 2003.

It is this explosive growth of the wireless Internet that SkyDesk is counting on to translate into increased demand for data security.

“It’s a strategic imperative to leverage our solutions into any other device-based environment where the Internet plays a role,” Dearen said.

Qualcomm and Hikari, a Japanese marketer, reseller and distributor of telecommunications services, each invested $10 million, with Hikari taking a board seat to represent both companies’ interests.

SkyDesk currently has 35,000 paying customers, with approximately 50% of its customer base added over the last several months. While Dearen said that the company recorded only $560,000 of subscription-based revenue for fiscal year 1999, it brought in $250,000 in revenue for the first quarter of 2000.

Dearen added that, while the company is still not profitable, it is fully funded through the next two years with $30 million of cash on hand. The company has enough resources to bring it through to profitability with or without completing an IPO.

Flying Toward Public Markets

SkyDesk may begin marketing its IPO at the end of the year, although no official date has been set. Donaldson, Lufkin & Jenrette will act as lead underwriter on the deal, with Salomon Smith Barney and Bear, Stearns & Co. also taking a slice. The company filed its S-1 registration with the Securities and Exchange Commission March 10.

SkyDesk, formerly known as @Backup, scored its seed round of venture financing in July 1996 with a $4 million investment from San Francisco-based Alta Partners and San Diego’s Enterprise Partners.

A $15 million second round, led by strategic investor and automatic tape library producer Advanced Digital Information Corp.’s $7 million commitment, also included EMC Corp. a manufacturer of computer disk memory hardware and software.

ADIC’s chairman and chief executive officer, Peter van Oppen, took a seat on SkyDesk’s board. American Express and Merrill Lynch also joined the second round.