A Master of Disaster with an Eye to the Future

By Ted Coons and Sean Giese

Datto doesn’t fit the typical venture profile — it was founded and is headquartered in Connecticut, operates in the mature Data Protection market, and hasn’t raised hundreds of millions of dollars. But when Datto’s management chose Technology Crossover Ventures to lead their latest investment round we jumped at the opportunity.

Ted Coons, GP at TCV and Datto Board member

A true “master of disaster”, Datto is everything we look for in an investment at TCV: growth-oriented companies that have great management teams, address large market opportunities, have significant revenue traction and are looking for an investment partner that understands technology and the challenges of scaling businesses. By helping small- and medium-sized enterprises backup and recover lost data, Datto has built a rapidly-growing business with more than $100 million in revenue. And did we mention it’s profitable? Datto’s financial profile is impressive in its own right, but not nearly as impressive as Austin McChord, Datto’s founder and CEO, and the management team’s vision for the company.

Sean Giese, Principal at TCV

Datto’s value proposition is simple — it provides small and medium enterprises (50–1000 employees) with the kind of iron-clad data protection and recovery services typically available only to the Fortune 500. Whether data loss is caused by human error, machine failure, or natural disaster, Datto can have customers up and running again in as little as six seconds. That’s because Datto’s customer data is protected onsite and within Datto’s five global data centers. Should the need arise, customers can run their entire business in Datto’s cloud infrastructure. When Superstorm Sandy hit in 2012, more than 500 of Datto’s customers impacted by the storm continued to operate without disruption. It was a sobering reminder that roughly 80 percent of Datto’s customers require some form of recovery over a three-year period.

Importantly, Datto sells their products through Managed Service Providers (MSP) — MSPs are Value Added Resellers’ taller, better looking younger brother and we believe they are becoming an increasingly important channel for the delivery of IT.

The Data Protection industry has created several multi-billion-dollar businesses since the market matured over ten years ago. All these successes occur at infrastructure disruption points. Client/server architecture gave rise to Veritas, which sold to Symantec in 2005 for $13.5 billion. The transition from tape to disk to solid state storage underpinned Data Domain and its sale to EMC in 2009 for $2.5 billion. We believe the shift to cloud infrastructure will drive Datto’s success.

Of course, the obvious question is: Why would an SME operating in the cloud need Data Protection? There is little debate that IT infrastructure is moving to the cloud, but the shift has been slow and gradual. Chew on these data points:

  1. Business email largely remains behind the firewall of the enterprise despite the introduction of Office 365 in 2011.
  2. A Spiceworks survey earlier this year revealed that 61 percent of companies in the Spiceworks network still have at least one instance of Windows Server 2003 running within their environment.
  3. Roughly one-third of the infrastructure protected within Datto’s data center is the domain controller, which is effectively the brain of IT administration which allows users to access their internal network. At the moment, there aren’t any simple and reliable options to ‘outsource’ the domain controller to the cloud.

So as the transition to the cloud continues, there is ample opportunity for Datto to continue along its strong growth trajectory. But it is management’s vision for Datto that sets it on course to reach the next level.

Over the past year, the company announced initiatives that highlight its ongoing commitment to evolve with its customers and partners as the world moves to the cloud:

  • In December 2014 Datto acquired Backupify, which provides Data Protection for SaaS applications. Backupify was already one of the world’s largest Google Apps protectors and recently released an integration with Office 365 and Salesforce. While SaaS backup might sound like an oxymoron, consider this — Datto performs a Backupify recovery every 1.3 seconds. Or, check out Twitter users’ reactions to the Google Apps outage just a few weeks ago.
  • Earlier this year the company announced the Datto Networking Appliance (DNA), which serves as the gateway for an internal network. This is a natural extension for Datto, as routers are unlikely to be displaced from inside SMEs, as no current technologies exist to replace them. By launching a router, Datto has enabled its MSP partners to more deeply understand the SME IT environment and troubleshoot IT issues that are often rooted in networking.

And that’s just the beginning. With the current financing, Datto will focus on international expansion and new product and services announcements for partners and their customers worldwide.

“Ted Coons and the team at TCV have incredibly deep market knowledge and experience in helping companies at our stage of growth deliver and expand their services. We’re excited to have them on board.”
Austin McChord, CEO and Founder of Datto

Datto represents TCV’s fifth investment in the New York metropolitan area since 2013. We’re thrilled to be a part of Datto’s journey.

Welcome Austin, and the entire Datto team to the TCV family.

For a complete list of TCV investments, visit us at www.tcv.com/portfolio-list/.