Riding a hot combination of new technologies for virtualization and interest in the storage sector, Pivot3 Inc. raised $24 million in an oversubscribed Series C funding led by Chicago-based Mesirow Financial Capital Partners to expand in its first commercial market for video surveillance and prepare for product launches in additional vertical markets.

Mesirow joins previous investors Lightspeed Venture Partners of Menlo Park, Calif., and InterWest Partners of Palo Alto, Calif., along with new investor Silver Creek Partners of Dallas, to bring total funding in the 5-year-old Spring, Texas, company to $46.5 million.

The deal comes after Pivot3 launched its first products last June and drew several offers based on the company's initial revenue traction and market demand.

"We began fundraising last fall with one quarter of sales and had about a dozen customers when we closed in December," Pivot3 CEO Bob Fernander said. "The sector we are in is particularly frothy, with some high-profile storage exits in recent months, and we represent the next generation of virtualization technology, so there was more money available than we were looking for."

Fernander did not disclose a valuation for the round, but he said the company had multiple term sheets and ended up taking in more money than they initially targeted. Barry Eggers, a partner with Lightspeed, which initially seeded the company in 2003, said the deal came at a "nice uptick" to the company's Series B round, led by InterWest.

Pivot3's software-only technology is based on longstanding RAID (Redundant Array of Independent-Inexpensive Disks) technology, which engineering co-founders Bob Galloway and Ryan Callison had worked with extensively going back 20 years with Compaq Computer and other companies. The technology is used in network storage systems to allow data to be stored on multiple disks managed by algorithms, which allow retrieval of data intact even if a single disk fails.

RAID-based systems have typically required expensive proprietary hardware systems, however, and as demand for increased storage rises, the founders saw an opportunity to take advantage of low-cost, powerful server and storage media technology by developing a software-only product.

Eggers said Lightspeed made its investment based solely on the record of the team, but that the company quickly drew a road map for development, outlining a plan for the product by the time of the Series B round in January 2005.

Ron Nash, a Dallas-based partner with InterWest, said there still was no product and no identified market by that time, but the company had a clear view of where it was going.

"The technology team was extremely strong, and the initial design was a potential breakthrough in getting away from proprietary hardware and silicon," Nash said. "We thought it was applicable in a huge number of markets; it was just a matter of picking which to focus on."

Nash said it took a little longer than anticipated to complete the product, but he said the market has taken off since the company launched products for video surveillance, which is experiencing huge growth both in new deployments and in converting from analog to digital formats.

Fernander said that when he joined Pivot3 in Jan. 2007, he quickly identified video as the most promising initial market and set up a sales approach that emphasizes partnerships. The company works closely with systems integrators and turnkey systems providers such as Honeywell that typically assemble entire systems under their own private label.

Within video surveillance, the company has targeted sub-verticals in the gambling industry, which deploys multiple cameras and has regulatory requirements for storing all data for a proscribed length of time, municipal government for traffic and public safety and the federal government for homeland security and other applications.

Fernander said the market for video storage is probably the fastest growing in the unstructured storage industry, and he said it will demand all of the company's sales and marketing focus for the near term but that Pivot3 has already identified a number of unnamed other industries and begun developing products. He said he expects the company to raise additional money in late 2009 before tackling other sectors.

The company used no outside financial adviser for the latest round and had legal work on the deal from John Geschke of Cooley Godward Kronish LLP in Palo Alto.