Seattle startup raises $1.3 million to encrypt the cloud

October 7, 2011

Kory Gill’s “a-ha” moment came in the form of a lightning bolt that struck his Seattle home and fried his computers. In the aftermath, his wife’s main concern was whether their digitally stored family photos had survived the blast.

“What more of a sign do you need to go start this company?” Gill recalled his wife asking him, who used the scare to leave a 20-year career at Microsoft (MSFT.O) and launch his own online backup company.

Three years later (Reuters first interviewed Gill in 2009), Gill and co-founder Marius Nita – a former Microsoft colleague – are seeing some traction with Newline Software Inc, having launched the first version of their online storage product, Exact, into the market in August.

Gill told Reuters they have just closed their latest financing round – Newline’s third – to bring their total funding to $1.3 million. The money, raised from friends and family, will be spent on improving the product, growing the brand and building a new software platform that will allow Newline to encrypt every piece of data stored online, or in “the cloud,” said Gill.

The platform called OPTIC (Online Privacy Technology In the Cloud) is an application programming interface (API) that Gill hopes will give Newline a competitive advantage over much larger rivals such as Carbonite and Mozy.

“There are a lot of online backup products out there so we needed a way to differentiate ourselves,” said Gill, referring to OPTIC as an “index to encrypt data in the cloud.”

Newline is really two different companies: an online data storage service (Exact) where users store files and a software program (OPTIC) that is able to protect and archive sensitive data stored anywhere on the Web.

OPTIC can be used on any platform, meaning Mozy or Carbonite customers can use it to encrypt their files, said Gill. He also noted that because Newline encrypts every piece of data, customers are able to retrieve files exactly the way they originally saved them, something the competition doesn’t currently offer.

“The impact of that is (if) you backup all your pictures and news stories over the last year and you get a new computer and restore all those files to your computer they all have today’s date on them,” said Gill, who confessed that most of these advantages could be adapted by competitors within “three months.”

Newline also faces a tough challenge competing for users against Carbonite (CARB.OQ), a publicly traded company that has raised more than $60 million in venture capital, that spends far more on customer acquisition costs.

Gill, who won’t disclose the company’s number of users, said Newline aims to grow at roughly a tenth of the rate as Carbonite, which has more than a million subscribers. Newline will target “smaller incremental more steady growth,” said Gill, adding they will look to attack the crowded space in different ways.

“We’re looking for the blue oceans,” said Gill, whose company eschews flat monthly fees, preferring to charge customers for what they actually use. “We have some markets and niches that are not being noticed by the current players in the space and that’s where we’re making our largest inroads in some of the spaces that are being overlooked.”

He added that Newline also promises “100 percent data privacy,” which means none of its staff can see the files they store. Gill said this service is unique to Newline and  something that will be especially attractive to businesses that have highly sensitive legal and financial information.

Gill is trying to transition Newline more towards the data privacy spectrum, where its software has “applications far beyond what we’re doing.” He said cloud computing is still in its infancy and companies like Newline are just starting to discover how people store their personal data and share it between devices such as personal computers and smartphones.

“Like any product that has just launched part of our struggle and job is to make a name for yourself and be seen as a reputable service,” said Gill, adding Newline will be looking to attract some venture capital going forward “to really make a dent here.”

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