When data storage company Actifio raised its new $50 million Series D round, investors valued the company at roughly $500 million. As high as that valuation was, it could have been even higher.
The company received offers at valuations that were 15% more than what it ultimately took for its latest round, but its management accepted this deal because it didn’t want the valuation to get too far ahead of the company’s own growth rate, according to Ash Ashutosh, Actifio’s founder and chief executive.
“I would have to start doing unnatural things to try to meet those expectations,” Ashutosh said. “This ($500 million) was a number we could comfortably create a four-to-six-times return.”
Ashutosh is one of a growing number of entrepreneurs in the enterprise software sector carefully weighing whether opting for the highest valuation possible might limit a company’s options in the future. That dilemma is more relevant than ever, since momentum in the venture market is shifting to the enterprise sector after years of soaring valuations in the consumer Internet sector.
Actifio makes storage systems that make one “golden copy” of a company’s data. That copy can be accessed by other applications that need copies of data, such as disaster recovery, archiving or software development and testing. This spares businesses the expense of keeping multiple copies of the same data for each of those applications. The Waltham, Mass.-based company finished last year with bookings up eight-fold from a year earlier, to about $17 million.
“They have simplified a product line that can do the tasks that, if I was to go to (storage giant) EMC would take four or five product lines that are poorly integrated and at significant greater cost,” said Rick Kimball, a founding general partner of Technology Crossover Ventures and lead investor in the round.
While the appeal of companies like Actifio is driving greater competition among venture investors, the resulting higher valuations can cause tensions among investors and even harm companies. New investors who paid a high price to get into a company may be inclined to hold out for a blockbuster IPO exit as a way to recoup their investment, while founders and early investors who have worked for years to build a company would be more inclined to accept a good acquisition offer…