Chicago’s FreeDrive Inc., an Internet company led by former Chicago Mercantile Exchange Chairman John Sandner, is expected to announce Thursday strategic investments by three major corporations: Motorola Inc., Electronic Data Systems Corp. and EMC Corp.
Terms were not disclosed, but Sandner said the three companies and a number of local investors, including himself, are providing $20 million in equity financing.
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The money and blue-chip partnerships come at a critical time for 2-year-old FreeDrive, which has grown so far solely with money from angel investors. The firm badly needs to increase its visibility and ramp up sales in the highly competitive but potentially lucrative business of providing Internet-based storage services.
FreeDrive started as a consumer business, providing 50 megabytes of free disk space to customers who agreed to receive e-mail advertisements, and relied on ad sales for revenue.
With the new strategic relationships, it plans to gear up sales to fee-paying commercial customers, from home-based businesses to Fortune 1000 companies.
The timing is right.
Data storage, an estimated $30 billion worldwide business, is exploding as corporations generate vast seas of digital records and look to the Internet to share information with employees, customers and other stakeholders.
Internet-based storage is important because the information can be accessed from anywhere.
“Storage is king as greater amounts of data move through devices, whether wireline or wireless,” said Warren Holtsberg, director of One Motorola Ventures, the venture capital investment arm of the Schaumburg-based global communications company which made Motorola’s investment.
Holtsberg is joining FreeDrive’s board.
Sandner, FreeDrive’s chairman and CEO, said the partnerships are more important than the money.
“Money can be found in a lot of different places,” he said. “What this does is give us a global distribution channel with engineering support and access to state-of-art technologies.”
EDS brings Web hosting and other services that FreeDrive needs to serve customers worldwide, as well as access to small and midsize business customers. Sandner says about half of FreeDrive’s 8 million customers are outside North America.
EMC, a leader in providing giant pools of disk storage for corporations, will provide storage for FreeDrive as well. EMC also will collaborate with FreeDrive on new types of storage applications such as streaming audio and video for wireless devices.
Motorola will work with FreeDrive on creating storage that can be accessed by mobile devices in homes, workplaces and cars.
All of these partnerships are critical for FreeDrive to grow rapidly.
The upstart firm grew out of another venture founded in 1993 with Sandner’s backing, by trader Michael Rhodes with Jeffrey Sesol, who envisioned an AOL for the futures industry.
Last year, Sandner and Rhodes talked about taking FreeDrive public and raising as much as $250 million, but the offering never materialized. Meanwhile, competitors such as I-Drive.com, Driveway and X-Drive have raised tens of millions from venture capitalists.
Sandner says FreeDrive’s cost of acquiring customers is far lower than competitors’ costs, and he insists FreeDrive hasn’t needed millions.
He’s taken an increasingly hands-on role since early this year, when he stepped into the CEO role after Mark Rittmanic, former president of information-technology firm Trase Miller Solutions in Oak Brook, left after two months.
Sandner recently hired David Falter as FreeDrive’s president and chief operating officer from systems integrator New Logic, where he was chief executive.
Sandner said that FreeDrive will step up hiring, likely doubling its workforce of 46 employees over the next three months. And he predicted the company will be profitable within three quarters.
Said Motorola’s Holtsberg, “It’s a superb team. They already have begun to realize significant traction in the marketplace. Our expectation is that will continue.”
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