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Investors bet $16 million on growth in application delivery market

After investing $16 million to application delivery controller and load balancing solution provider Kemp Technologies, investors are weighing the risk and potential for competition down the road

By , Network World
January 27, 2012 11:29 AM ET

Network World - When investment firm Edison Ventures decided to contribute the majority of a recent $16 million round of funding for application delivery controller provider Kemp Technologies, investment manager Lenard Marcus acknowledged that some initial risk was incurred.

Kemp Technologies' potential in an otherwise underserved market, however, is what made it worth that risk, Marcus says.

"There's a pretty strong demand for the products, and the company is having good success and still has yet to turn into several untapped markets that it needs to penetrate," he says.

BACKGROUND: The strategic importance of an application delivery controller

Edison Ventures contributed $7.5 million to the funding initiative through a joint buyout with equity investment firm Kennet Partners and advisory service provider Orix aimed at improving product development, marketing and sales at Kemp Technologies.

According to Marcus, Edison initiated the funding because of what his firm saw as an underserved need among small and midsize businesses. Kemp was the only company really competing for these customers, and with additional funding, Marcus hoped it could retain that position.

"It took some time to win them over, as usual, but they recognized that the market opportunity was big enough to warrant an investment," Marcus says.

In its 10-year history, Kemp had been proudly self-funded, according to Peter Melerud, company co-founder and vice president of product management, but was tempted by the opportunity to invest in the research, development and marketing resources to bolster its position as a leading application development controller and load balancing provider.

"The load balance and ADC market as a whole is always in a state of flux and change," Melerud says. "Most recently we certainly saw a lot of expansion in customers for application-specific requirements in the Microsoft space, particularly for Kemp but also in other vertical markets, and we needed to be able to increase our R&D capacity, as well as sales and various graphic markets. So to be able to really cover a number of application verticals as well as customer profile verticals we really needed to step up and take a leadership role."

Specifically, Kemp fills a void between application vendors and their SMBs customers. This need is somewhat unique to SMBs, according to Melerud, because they lack the internal resources to maintain high-performance application delivery on their own. Suddenly receiving an additional $16 million from investors who support Kemp's initial business plan will only help as it looks to further penetrate this market.

"Our core market has always been small and medium businesses and, in that regard, what's happening is that the application vendors are providing some terrific solutions to the customers, but they're saying [the customers] are going to have to go and work with a networking company to deliver ADC," Melerud says. "And that's kind of where we fit very well, because we provide some pretty core networking and scalability capacities for the customers deploying the applications, and at the same time we're providing the application vendors a low-cost, easy-to-deploy option to work with their partners, so that kind of partnership has really expanded our market quite a bit."

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