Wasabi CEO David Friend: New $30 Million Funding Round Comes From ‘Family Offices,’ Not Venture Capital

‘Family offices are evergreen. They can stay in an investment as long as they want. Frequently, VCs have a lot of control terms that they like to try to squeeze in, and family offices generally don't want to end up running the company or owning the company,’ the Wasabi CEO tells CRN.

Funding For Growth

Wasabi, a Boston-based developer of cloud storage technology, this week unveiled a new round of funding that brought it $30 million, bringing total funding to $110 million.

Wasabi was founded by David Friend, a serial entrepreneur who was best known as one of the co-founders of Carbonite. Friend is taking an unusual route in fundraising, depending on family offices instead of venture capital investors as a way to keep control of the company in local hands and be more able to focus on long-term plans.

Friend recently spoke with CRN about the investment, the competitive cloud storage environment the company faces, and the positive and negative impacts it is seeing from the COVID-19 coronavirus pandemic.

Here is how this fast-growing company is faring and what it expects going forward.

Can you tell us about the new funding round?

We're announcing we recently completed [a $30 million] round of funding and happy to say that it was completed in probably one of the worst environments I've ever experienced, and at a step up in valuation, which made it even better. I'd say it was probably the most miraculous fundraising that I got done.

When you say a step up in valuation, what do you mean?

The investors paid up a higher price than they did in the last round.

What's Wasabi's new valuation?

We're not talking about valuation, but it's up in the hundreds of millions.

Were there any strategic investors?

No. It's mostly big family offices. I've decided with Wasabi not to go to the usual VC [venture capital] route. And so most of our investors are very large family offices. Multibillion-dollar family offices.

What's the difference between investments from family offices and traditional VC funding?

Well, VC funds have their own agendas. I've been raising VC money my whole life. But VC funds have fixed life, and so there comes a time when these VCs have a different agenda from the company. Family offices are evergreen. They can stay in an investment as long as they want. Frequently, VCs have a lot of control terms that they like to try to squeeze in, and family offices generally don't want to end up running the company or owning the company.

I've had both VCs and family offices in my previous companies, and I've made lots of money for my investors in the past. So when I started Wasabi, there were a lot of people who were there with their wallets open. And I said, ‘Why do I want to spend the month running up and down Sand Hill Road [in Silicon Valley] when the money's right here from the people who are good long-term investors?’

So, with investments from family offices, does that mean they typically don't want a seat on the board?

For the most part, yes. The lead investor in this round, who had invested previously, is getting a seat on the board at this point. But that's only one. Most of the board is really controlled by the insiders.

What does Wasabi intend to do with the new funding?

We now have data centers in the U.S., in Japan and in Europe. We will be expanding our footprint internationally. We want to be closer to the customers. For reasons of speed and lower latency, we want to be in countries where there are data sovereignty issues. So, for example, we have a company in Canada that wants us to store 5 petabytes of health-care data. They can't ship it to the U.S. They're not allowed to do that. If we want to store that data, we need to be in Canada.

So you will see Wasabi opening up data centers in other parts of the world. My feeling is that probably about two-thirds to maybe 70 percent of the world's data resides outside the U.S. And our goal is to be the biggest cloud storage company in the world, so we need to be out where the customers are.

What about expanding Wasabi's U.S. operations?

Right now, we have two data centers on the East Coast and one on the West Coast, and we definitely would like to have a data center in the middle of the country. So that's on the drawing boards as well because you're faced with speed-of-light issues. If I were in Chicago and I wanted to send my data to our data center in Virginia, that's probably 25 [million] or 30 milliseconds of latency. And that makes a difference for some applications. So I'd like to be closer to some of the bigger markets like Chicago, Dallas or Denver.

How far along are you on that goal of being the biggest cloud storage provider in the world?

Well, once you get past Amazon, Google and Microsoft, my guess is we're probably next in line. We're probably a distant fourth behind any of those. But we're focusing on cloud storage. Amazon, Google and Microsoft have of hundreds of other cloud products. And we only do storage. I like to think of us as kind of the Walmart of cloud storage. We're always the lowest price, always the best performance, always the best value. And we're getting a lot of business. We've got 15,000 customers now. We grew revenue 5X last year. We'll grow revenue 3.5X this year. We've got hundreds of petabytes of storage now. And we've been growing, I don't know, 40 [percent] or 45 percent quarter over quarter. It's a rocket ship.

So that that's pretty much the game plan. We're just going to focus on doing this one thing that we know how to do really, really well, which is store people’s data at a fraction of the price of Amazon or Google. Amazon charges $21 to $23 a terabyte per month. We're at $6, and we're faster. That's why people are coming to Wasabi.

[Amazon, Google and Microsoft] have storage, but they don't seem to be paying a lot of attention to it because they got hundreds of other products. Every time you go an AWS event, they announce 25 new products from AI to content delivery to things for surveillance to video post-production. We just kind of stick to our knitting. Cloud storage is a commodity, right? The good thing about a commodity market is you don't have to worry about whether there's a market for your product. And the guy with the best value typically wins. We're kind of like somebody who figured out how to make sheet steel for 10 percent less. Why would you buy the other one when ours is exactly the same as theirs?

But the big difference is the big three public cloud providers have those other applications that they can tie to data in the cloud.

They'll always be big players in cloud storage because it's very convenient to have everything in one place. But we have lots of customers who are running their apps in Amazon's cloud but are storing some of their data in Wasabi. Amazon charges you to take your data out, which we don't do, by the way. If you're going to keep your data for more than two or three months, it's cheaper to pay Amazon their egress 'ransom' and move the data to Wasabi than it is to keep it in Amazon, and you can still access it with Amazon because luckily Amazon doesn't charge you to bring the data in and we don't charge you to take it out. Once you've moved it to Wasabi, you're home free.

Are your customers running primary storage in Wasabi or not?

Some are. It depends on the application. So in some cases we're a second copy, and in many cases we're the first copy. The only thing that we don't really want to be involved in is what I would call ‘active storage,’ which is still largely on-prem. Like if somebody's running a production database and the data is only going to get stored for a day. We don't really want that kind of business because with our free egress model, we cover the cost of the egress in the storage. We don't want people who aren't going to keep their data for at least 30 days.

Is Wasabi still primarily an indirect sales organization?

It's largely indirect, and that's the way we are going more and more. We have about 2,500 channel partners today, which is pretty great considering we only started our channel program less than a year ago. And channel partners are learning that they can make a lot of money by reselling cloud storage, more money than they could make if they were selling an EMC or a NetApp box.

Of those 2,500 partners, how many are in North America?

Probably 75 [percent] or 80 percent. We're 100 percent channel in Europe and Asia, but in Asia we have a multi-tiered distribution so I don't even know how many resellers we have there because we don't see them. We see our distribution partner.

How has Wasabi been impacted as a result of the COVID-19 coronavirus pandemic?

I haven't seen any real impact. Storing data is not an option or a nice-to-have. It's not something you can defer. Just because there's a pandemic now doesn't mean the satellites aren't still sending down images of the Earth and the telescope in Chile isn't still sending images of the sky. People still do their backups every day. And when they go to Mass General to have an MRI, it still has to get stored somewhere. And the genomics machines are still cranking out data. The video cameras on the street are still taking surveillance videos. So in some respects, we may have been helped by it because migrating to Wasabi is largely a cost-saving move.

And a lot of people have had the 'let's migrate data to the cloud' project sitting on their desks for months or longer. ... But now with everybody hunkered down and looking for ways to save money, it seems like these migration projects like moving data to Wasabi that have been sitting there for six months are suddenly popping up and people are doing something.

And also, if people are looking at this work-from-home thing as something which is likely to continue in one form or another, it's hard to access data if it's still on-prem. You have to use a VPN and a bunch of other stuff, and certainly if you want to have hundreds or thousands of employees all accessing on-prem data, that requires a lot of infrastructure that you need to build out that you didn't have before, and it's expensive to do that.

How did the pandemic impact your fundraising activities?

Well, it made it much harder. There are a lot of people who are totally freaked out, panicked, their personal investment portfolios are in the tank. So it certainly made it harder. But in the end, we were oversubscribed, and we had to enlarge the round a little bit, so it worked out OK. But it took a lot more work than it would have taken if it happened in January, that's for sure. And the only thing that made it possible is we have very good financial results, so it was still possible to do this round. But it certainly would have been a lot easier if we didn't have the pandemic to worry about.

Any plans for future funding rounds?

Not in the immediate future. We're working to raise some debt now because we have to buy a lot of infrastructure, and we shouldn't be using equity capital to buy sheet steel and disk drives. We're now focusing on raising debt.

Our business model is a lot like real estate. You build an apartment building, you put the 'For Rent' sign out, tenants move in, and when the building gets to 60 [percent] or 70 percent occupancy, it starts making money. And we do exactly the same thing. We build the data center, we put the 'For Rent' sign out, people send us their bits, and when it gets to be a certain fullness, it starts to make money and we build another one.

Is Wasabi either profitable or cash-flow-positive yet?

Growing at this rate, I don't see how we would be profitable until the growth rate slows down substantially. But once the growth rate slows, the company will throw off a lot of cash. But right now, everything that comes in, we turn it right around and build new data centers.

Has the pandemic impacted your supply chain?

Lead times for things like disk drives have definitely slipped out from three months to six months. We have to watch that supply chain very carefully because if we run out of storage, that would not be very good.

Any signs that it's getting better yet?

No. If anything, it's gotten worse. And with all the tension between China and the U.S. right now, people are furiously trying to move the supply chain into Vietnam and Thailand and places like that. But those things take a long time to get ramped up, and our government in all of its wisdom has just made dealing with China much more difficult, which is where a lot of this equipment comes from.