Third CEO Is Charm for AttachSTOR

AttachSTOR Inc. will announce today that it has raised $7.5 million in Series B funding, just three months after firing former CEO Tim Wudi for his inability to attract new investors.

The funding deal is expected to help the Phoenix, Ariz.-based company achieve profitability by 2005, thanks to an expanded R&D effort that should soon yield a Lotus Notes platform for an e-mail attachment management suite that currently focuses on Microsoft Exchange environments.

“Tim did some good things, but struck out in terms of raising the funding that this company needed,” says Pat Sullivan, an original investor in AttachSTOR who transitioned from company chairman to president and CEO after Wudi’s ouster in May. “Our plan now is to work like crazy like this is the only money we’ll ever raise, even though no VC I’ve ever met thinks that a Series B round is the final round.”

Wudi had been hired late last year to take over the top spot for AttachSTOR co-founders Gary Legner and James Parker, who now serve as vice president of marketing and vice president of engineering, respectively.

The move was expected to help the company move beyond its angel investor base. But all Wudi secured was a $1.2 million convertible note bridge loan this past April. Once Sullivan came aboard, however, everything changed.

“Pat Sullivan was one of our main drivers in doing this deal,” says Deepak Camra, a general partner with Canaan Partners who didn’t see the AttachSTOR offering during Wudi’s tenure. “We had seeded SalesLogix – which was one of Pat’s previous companies – and our understanding of his knowledge of marketing helped make all the difference in our decision to invest.”

Canaan co-led the Series B funding alongside Trinity Ventures, with both Camra and Trinity’s Tim McAdam taking company board seats. The deal also included all of AttachSTOR’s bridge loan investors, most of which were family trusts and angel investors that had participated in the company’s $1.6 million Series A funding in 2000. They include Sullifam LP, The Ross and Teri Barrington Family Trust, Lobodos Ventures LP, JABT LLC, Purtell Business Ventures Ltd. and Greentree Partners LLC.

Each investor is betting on two things:

First is that Sullivan and company will spend their newfound capital wisely and slowly.

Second, that corporate IT departments will be willing to buy a product dedicated to the email server storage problems caused by attachments.

Sullivan says that e-mail attachments consume about 90% of all e-mail resources (storage, bandwidth and processing), despite being present in only 30% of all enterprise e-mail. Moreover, he estimates that up to 65% of this attachment traffic involves either duplicate attachments, or slightly amended attachments.

“The problem isn’t so much how much storage these attachments take up, as it is managing all of it,” Sullivan says. “Exchange servers themselves were designed for text messages, which means that they get bogged down by all these attachments, especially since people don’t tend to delete them. IT guys go in on Friday night and back up the same attachments they had backed up the previous week.”

To ease this burden, AttachSTOR has developed a software solution that essentially strips attachments off of e-mail and places them in a dedicated attachment storage server.

The product also involves various security and compression issues. It currently only works in Microsoft Exchange environments, but will soon work for Lotus Notes. Camra says that Linux would be the logical next step.

The only other private company known to be dedicated to the e-mail attachment space is Accellion Inc., which has raised around $20 million in venture funding from investors like Baring Private Equity Partners, ES Group Ventures and Tinshed Corp.

Like AttachSTOR, Accellion has a product in the market and is generating revenue.

Email Dan Primack