Zerto pockets $53M funding round to prove 'self-sufficiency'

Zerto disclosed its first venture funding round in four years, seeking to improve its IT Resilience Platform disaster recovery software and prove its financial viability.

Zerto last week said it raised $53 million in funding and gained a new investor. Zerto's previous publicly disclosed funding came in 2016 when it raised a total of $70 million over two rounds. Zerto CEO Ziv Kedem said Zerto raised another $40 million in 2018, but didn't publicly reveal the round. Kedem said after 2016, he decided not to advertise funding rounds, as he considered it "too internal" and uninteresting to Zerto's customers.

However, Kedem has changed his mind and said we're no longer living in a "normal world." The COVID-19 pandemic has slowed the economy, negatively impacted businesses across many industries and lowered customer confidence. Organizations have legitimate reason to worry that their IT vendors and partners might go out of business.

"In the past, no one was asking, 'Is Zerto financially stable?' But in today's world, there are a lot of questions of self-sufficiency," Kedem said.

Zerto laid off an estimated 200 employees in March 2020, potentially signaling financial trouble for the company. However, Kedem said the layoffs were part of the effort of shifting the company toward profitability instead of rapid growth. Right now, Zerto is looking for self-sustainability, and Kedem said this funding round is, "the final piece of that puzzle."

Ziv Kedem

The DR vendor raised $33 million in equity funding and an option to draw up to $20 million in venture debt. This funding round was supported by previous Zerto investors, including U.S. Venture Partners, whose other investments include Box and SanDisk. A new investor, Poalim Capital Markets, also joined this funding round.

Kedem said the company is more focused on profitability than growth at this point. Therefore, this new influx of funds will be invested into improving the Zerto IT Resilience Platform, expanding Zerto's partnership ecosystem and marketing and education efforts. Kedem said there's a higher market demand for DR and DRaaS as the COVID-19 pandemic has convinced many organizations some of the weaknesses of legacy backup.

Although customers are exploring containerization and investors were aware of the development of Zerto for Kubernetes, Kedem said that wasn't what specifically drove this round of investments. Zerto launched the Kubernetes product this month at its virtual ZertoCON user conference.

Christophe Bertrand, senior analyst at Enterprise Strategy Group, said Zerto is in the right place at the right time from a market standpoint. Zerto for Kubernetes put the company in a position to go where its customers are headed, but more importantly, availability service-level agreements aren't getting any less stringent. Bertrand said Zerto has always claimed it provided the highest availability possible, and there is increasing market pressure to achieve zero or near-zero levels of RTOs and RPOs.

"We know that DR is hot right now. RTOs and RPOs are becoming more critical," Bertrand said.

Zerto software enables continuous data protection (CDP), bringing RPOs to zero as it continually captures data changes and stores them in an electronic journal. JetStream DR is the most direct and similar competitor to Zerto, using CDP to power continuous replication in its DR product. Backup vendor Rubrik also has its own journal-based CDP technology powering its Cloud Data Management platform, and recently Veeam Availability Suite version 11 added CDP in a launch at the  VeeamON 2020 virtual event last week.

Bertrand said the best use of Zerto's money right now is go-to-market strategy and partnerships. He said the market is trending heavily toward SaaS applications, containers and high availability, and Veeam CDP shows that other players in the data protection space are aware of this.

"These are the battlefields now," Bertrand said.