CTERA gets $80m war chest for AI and acquisitions

CTERA has raised $80 million in primary and secondary funding from private investor PSG Equity.

A week after cloud file services supplier Nasuni secured a majority investment of up to $501 million, with some existing shareholders replaced by three new equity groups, competitor CTERA has brought in fresh funding. 

Liran Eshel.

Liran Eshel, founder and chairman of CTERA, claimed in a statement: “We believe CTERA is setting the standard for the modern hybrid data platform, with military-certified security and unparalleled performance. The strategic partnership with PSG will enable us to further drive our expansion while delivering top service to our customers, and implement our vision for AI data  services.”

PSG Equity managing director Ronen Nir – who joins the CTERA Board – said: “We are excited to partner with CTERA as they embark on capturing, what we believe will be an inflection point in the hybrid cloud data market, leveraging both organic and inorganic opportunities to strengthen CTERA’s position and deliver even greater value to its customers.” 

The two themes we see here are taking advantage of the current AI opportunities and growing CTERA by acquiring other businesses; the inorganic opportunities Nir mentioned.

Ronen Nir.

CTERA reckons that unstructured data represents about 80 percent of organizational data distributed across branch offices, endpoints, on-premises, and cloud data centers. Hybrid cloud file storage is one of the fastest-growing segments, with adoption rates expected to triple from 20 percent in 2023 to 60 percent in 2027, according to Gartner. New enterprise AI platforms depend on timely access to corporate data for training models and for augmented data retrieval (RAG) to ensure relevance and accuracy.

PSG’s $80 million is split between primary and secondary funding. Primary funding goes to CTERA to spend on growing its business. Secondary funding is used to buy out existing shareholders. This can include existing VC investors needing an exit and employees wanting cash for their share options. We asked CTERA’s chairman and co-founder Liran Eshel about this split, AI and inorganic opportunities.

Blocks & FiIes: What are the proportions of the primary and secondary funding in the $80 million PSG Equity investment?

Liran Eshel: The company is not going into the details of the primary/secondary breakdown. The main purpose of the secondary was to buy out existing long-time shareholders, for example Venrock, that have left the board.

Blocks & FiIes: How will CTERA enable its data stores’ content to be used in RAG for LLMs?

Liran Eshel: AI foundation models require access to data to make them relevant and accurate. While general LLMs are trained over public data, to create the corporate AI brain, organizations need to feed it with their private data.

This is not as trivial as it seems. First, you need to gain access to the data, and as we know, 80 percent of it is unstructured and much of it is distributed across edge locations. The next challenge is AI ingestion, which can be highly intensive in terms of compute and networking if not designed properly. And lastly, there is security – connect AI to your private data, and it is hacker’s heaven. Just ask any question and get all the classified information summarized for you.

The CTERA Data Intelligence Service is intended to solve these exact problems. The CTERA hybrid cloud data platform, and the investments we have been making in the last two years in content services and DataOps, place us in a unique position to provide a best-in-class solution to this challenge of connecting large scale unstructured data repositories with AI.

See more information in the architecture diagram below that shows how we address the problem using distributed ingestion and end-to-end permission enforcement:

Blocks & FiIes: What inorganic opportunities is Ronen Nir talking about?

Liran Eshel: “CTERA is not sharing additional information at this time about non-organic opportunities.”

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CTERA’s last fund raise was six years ago, with a $30 million D-round taking total funding to around $105 million. In April 2022 Eshel told us it was close to becoming profitable and self-funding. He then had no plans to raise more VC funding. Now things have changed.

Its main cloud file services competitor Nasuni has had a transition to private equity ownership. PSG has holdings in a large number of other companies and inorganic opportunities may exist amongst them.

The third competitor in the cloud file services startup trio is Panzura. It was bought by private equity in 2020 and recently appointed a new CEO, Dan Waldschmidt, to galvanise growth.