IVP-Backed Zerto Announces E1 Funding: Another Step on the Road to IPO; And What to Look for in a Company on the Journey to IPO


By Sandy Miller

We at IVP are excited about today’s news that Zerto, who we supported in their $50 Million Series E round in January, has now increased that round by another $20 Million. Called an E1 round, this additional investment will enable the company to focus on continued growth and product development for a while to come.

Why would a company want to give themselves longer runway? Lots of reasons—most important being that for a company focused on IPO rather than quick exit, these things don’t happen overnight. It’s a long road, and we look for specific traits to support that journey when investing in what we believe are future IPO contenders.

I’ve written before about the challenges startups face when it seems that all Wall Street cares about is big names like Google and Facebook. Even as the unicorn market loses its appeal and investors focus once again on more realistic business goals, the big IPO remains the ideal end-goal for many investors. Founders, however, may be more tempted by a quicker exit via acquisition en route to IPO, and given the dearth of IPOs in 2016 thus far it is likely that we’ll see many more acquisitions—and lucrative ones at that—than public offerings for the foreseeable future.

For a late-stage investor like IVP, we’re not as interested in the quick exit. We still believe in the value of the IPO, and realize that it takes long-term vision and discipline from the leaders of the companies we invest in to make that possible. When it comes to diligence, we’re not just looking at market opportunity, we’re evaluating the strength of the company’s leadership, their experience as entrepreneurs who can build and maintain a company over the long-term, and their ability to project and meet milestones on a set schedule. We’re also looking at the company’s culture, and looking for teams committed to building something big together, over many years both pre and post IPO. That last part can be particularly daunting given the short tenures of top technology talent in a competitive market.

We recently invested in a company that met all of the above criteria. The differentiating factor in our choice to invest was not just the CEO’s past experience as an entrepreneur who had built a company that was acquired for a healthy sum—so he had been there, done that, so to speak, and was prepared for the much longer journey most IPOs require—but also the unified culture he had managed to build with an international team.

I’m talking about Zerto, a company that provides Business Continuity and Disaster Recovery (BC/DR) solutions for enterprises using virtualized, or cloud-based, data centers and applications. Outside of the IT community, BC/DR isn’t a hot topic—but it should be. Most people are by now aware of the ransomware attack that brought a California hospital to a halt, forcing people to use paper record keeping until thousands of dollars in extortion demands could be paid to access their data again. And we all know about outages in the cloud. Just recently, Salesforce cloud users lost four hours of data due to an outage. While the causes of both of these scenarios aren’t always preventable, with BC/DR, an IT team can simply failover their primary data center operations to a secondary data center in the cloud. Zerto makes this possible in minutes versus hours or days, whether the data center runs on public, private or hybrid cloud, and has capabilities to quickly and easily recover critical data and applications up to the seconds before the hack or outage.

Milestones Get Met
While compelling, Zerto’s strong product isn’t what initially captured our interest. We had of course noticed enormous momentum in the BC/DR space, but it wasn’t until later on in our diligence process when we talked to actual customers that it became clear how valuable the company’s BC/DR solution is to ensuring critical, daily operations proceed without interruption. What drew us to Zerto was that when we first met with CEO Ziv Kedem at a conference last year, he had detailed specific, ambitious goals for where both his product and his sales team would be at a specific increment in time. A few months later, he had met every one of those milestones. A few months after that, Zerto had met the next set of milestones, all on schedule—and his customer acquisitions paralleled that progress apace. For late stage investors, it’s essential to us that solid metrics are set and met by the leaders and teams of the companies we support, and here was a CEO we could genuinely take at his word. When he told us that he was building the company with an IPO in mind down the road, there was not question in our mind that he meant exactly that.

Culture Counts
When we started to dive deeper into Zerto’s culture, and the level of team commitment to make it over the long haul, it was striking how Ziv and his leadership team had managed to take the best of two cultures—in this case, Israeli and American, as Zerto is headquartered in Tel Aviv with a large team based Boston—and created a unified, goal-driven team of smart, highly-engaged people in all departments, including operations, sales and engineering. Visit the company’s offices and the energy is palpable—there’s a lot of activity, healthy dialog, and camaraderie present.

While we frequently evaluate international companies as potential partners, Zerto was our first major investment in an Israeli-based company. There are a lot of parallels between the Israeli startup world and that of Silicon Valley, geography and a tight-knit community of entrepreneurs chief among them, so we knew there’d be a strong affinity there. Boston, too, boasts a plethora of top technology talent, especially in the data, storage, security and associated software markets complementary to BC/DR. Keeping that talent engaged and committed to the long-term journey to and beyond an IPO can be a challenge. To stay involved with all of his teams, Ziv divides his time between Tel Aviv and Boston, and has a strong leadership team in place—most of who worked with him to build and successfully sustain his last company through to its exit goal, and beyond.

For the startup founders out there who may be disheartened by the current IPO market, I say: take heart. If you’re building a strong company, with a strong team, you have every reason to stay the path. It’s easy to be tempted by an earlier exit—and can be quite lucrative, too. Successful public offerings can’t be built in a day—or even a year—but with perseverance, commitment and dedication to weather the whims of the market with a much bigger goal in mind, they are still attainable. It’s worth it.

Sandy Miller is a General Partner at IVP, a later-stage venture capital firm based in Menlo Park, CA.