Scale Computing lands $12 million in VC funding

Scale Computing, a maker of data-storage devices that recently launched a “datacenter in a box,” has landed another $12 million in venture funding.

Leading the round is Indianapolis-based Heron Capital Venture Fund, with three Indianapolis-based firms that previously invested in tow—CID Equity, Spring Mill Venture Fund and Allos Ventures.

Also participating in the round is Benchmark Capital, a Menlo Park, Calif.-based firm that invested $9 million in Scale in early 2010 and was part of a $17 million round of funding later that year. Also involved in the latest round was Danville, Calif.-based Northgate Capital, also a previous investor.

A new investor on board this time around is Columbus, Ohio-based Reservoir Venture Partners. Investment from Heron and from Reservoir was an extra plus to Scale CEO Jeff Ready, who founded the company in California.

 “One of the challenges I think in the Midwest as far as equity investment goes is there is a lot less of it,” said Ready.

The funding will be used largely to help accelerate sales of Scale’s “HC3” product. Launched this summer, HC3 is being touted as a groundbreaking alternative to the so-called virtualization of the data center.

The virtualization trend sweeping the industry involves software licensed from firms such as VMware that that allows several operating systems to run as “virtual machines” on a single computer.

Virtualization is an alternative to investing in additional hardware such as servers. But many small and medium-sized businesses haven’t made the jump to virtualization given the cost, complexity and training requirements.

Scale is touting the HC3 device as alternative to virtualization for smaller IT departments and starts at under $25,500. It brings together storage, applications and servers into a single console. That can be one-third the cost of virtualization through the use of VMware, Scale officials say.

“Scale Computing is at the forefront of virtualization hyperconvergence,” Bill Gurley, a partner at Benchmark Capital, said in a prepared statement.

Scale already has had nearly 100 customer deployments of HC3 units in just a month after its launch, Ready said.  That’s about half of Scale’s total sales, which also include pizza-box-sized data-storage units based on the advanced parallel file system found in supercomputers.

The brisk pace of HC3 sales is in contrast to the nearly two years it took to sell an equivalent number of storage devices in the first two years of the company.  “It’s definitely surprising to the upside. I knew there was a lot of pent-up demand” for HC3, Ready said.

“In addition we have seen a lot of interest from much larger companies, which was unexpected,” Ready added.

Those include large manufacturing firms that may have 100 regional facilities.

The new venture investment is also timely as it comes just as Scale recently opened a sales office in the United Kingdom.

Company officials have been reluctant to specify sales potential, but HC3 could put Scale in a market space worth more than $5 billion a year, said Arun Taneja, founder of Boston-based Taneja  Group.

“There is a huge opportunity unfolding for us here in the midmarket with over one million companies in the U.S. looking to virtualize for the first time,” Ready said.

Scale, which employs more than 60 people and is based at Purdue University’s tech park near Indianapolis International Airport, had sales last year of about $10 million.