July 8, 2005 -- (WEB HOST INDUSTRY REVIEW) -- Web hosting automation software developer SWsoft (sw-soft.com) recently closed a $12.4 million round of financing, marking the first institutional investment in a company that to this point has been privately funded entirely by its founders.
Insight Venture Partners was the lead investor, joined by Bessemer Venture Partners and Intel Capital. The three firms purchased a relatively small stake in the company, with founder and CEO Serguei Beloussov and his partner still retaining majority control.
Bellousov told the Web Host Industry Review that the financing was secured not to sustain operations for what is a comfortably profitable company, but to propel the company into its next stage of growth, which ultimately means a public offering. "We will consider an IPO ... in the next 24 months," says Beloussov. "And for that generally, having institutional investors is helpful."
The investment was also important, Beloussov says, because it would give the company the sort of credibility it needs to hire top-notch executives and managers - an area of the company that is growing with some momentum.
"It's not as easy to hire those people into a Web hosting company which is private," says Beloussov. So bringing investors on board, "by itself makes it more attractive for high-class employees to join the company, especially those in sales and marketing and business development functions." Beloussov also believes having institutional investors will expand the company's network of contacts, further enhancing its ability to attract the type of personnel it's looking for.
With external investors, Beloussov expects SWsoft to establish closer relations with the portfolio of companies held by the three firms. He believes this will expose the company to successful business practices and importantly, lead to partnerships with technology industry leaders.
"Historically for our company ... it was difficult to convince industry leaders, companies like IBM, Dell, HP, Microsoft, EV1Servers, to work together with us, because the hosting industry was not getting enough attention, and we also didn't have any inroads into those companies," says Beloussov. "Now we can get introduction to the right people ... and help with business development with partnerships, especially with industry leaders."
Intel Capital's investment produced just the kind of technology and marketing relationship SWsoft has in mind. Collaborating made sense for both. SWsoft, with its virtualization software Virtuozzo, and Intel work at the forefront of the virtualization space. The deal covers Intel 32 and 64-bit platforms and its Intel Virtualization Technology, Dual-Core and EM64T.
"With this relationship ... we actually have access to all of those technologies ... and that's very important for us," says Beloussov. "The primary interest in the Intel case was access to technology."
The money also puts acquisition squarely on the agenda. SWsoft is interested in acquiring to expand its channels and hosting product offerings, and is contemplating the enterprise space as well. But in the meantime, Beloussov says, the financial resources will continue to be funneled into development of the company's technology. "There is still very much work to be done on technology (in hosting automation and virtualization) ... technology in the space is actually very young."
Insight has previously invested in hosting-related industries and was attracted by SWsoft's strong financials. Bessemer has had success in the hosting space, investing in Verio, VeriSign, Register.com and PSINet while Intel Capital was intrigued by SWsoft's work in virtualization technology.
