Profile: Carbonite

Startup Gains $2.5M Backup

Carbonite finds slim pickings among consumer-shy Boston VCs but attracts angels experienced in the retail market.

February 23, 2006

Online backup provider Carbonite said on Thursday it has secured $2.5 million in the first round of funding from two angel investors and a venture capital firm to extend its reach in the retail market.

The Boston-based startup, which was started by serial entrepreneurs David Friend and Jeff Flowers, is expanding its presence in the consumer space, a channel that Boston-based VCs tend to avoid, according to Mr. Friend.

"Unfortunately there aren’t a lot of VCs experienced in consumer products," he said. "They are generally knee-deep in business-to-business and enterprise products."

Mr. Friend, who has co-founded four other companies—three of which
were sold to larger entities and a fourth that is still private—said he
had a difficult time attracting VCs in the Boston area. He turned to
angel investors Common Angels and Keiretsu Forum, both of which
invested in Carbonite.

"We found that the terms being offered by VCs were terrible,"
he said. "And we are a management team with a very good track record. I
financed the company exclusively through angels and then the VCs came

The company added 3i, a VC with some experience in the consumer
channel. Carbonite named Mikko Suonenlahti, a partner at 3i, to its
board of directors.

"I have done both business-to-business and consumer, and frankly I
prefer the consumer market," said Mr. Friend. "Products in the B2B
market tend to be sold while products in the consumer market tend to be
bought. Consumer products are demand-driven and, if you hit it just
right, the products fly off the shelves."

Carbonite is about to introduce its flagship product, Carbonite
Backup, a program that runs on users’ PCs, monitors the PC for file
changes, and backs up users’ hard drives over the Internet to a secure

The company currently markets a version of the product through
Staples, a major U.S. stationery products retailer. The product backs
up photos on users’ PCs.

The Carbonite Backup service costs users $5 per month. Mr. Friend
believes Carbonite’s price will give it a leg up in what is becoming a
crowded market.

"We have developed proprietary back-end technology that allows us to
create a price point that is a quarter to a tenth of what’s out there
right now," he said. "We are doing unlimited storage for $5 a month.
Many of the others are offering one gigabyte for $10 a month."

With Carbonite Backup, the company is targeting home users,
telecommuters, and small businesses, many of which buy from retail
merchants. But Carbonite is also in the early stages of building a
reseller channel to attract users in the SOHO (small office/home
office) market that tend to hire VARs (value-added resellers).

"Anyone with a PC that has valuable content is in our market," said
Mr. Friend. "Very few PC users back up their PCs effectively. Backing
up to CDs does not protect you if your house burns down or someone
steals your PC."

A user who loses his or her PC can download a copy of all the saved files from the stolen PC to a new PC via Carbonite Backup.

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