As Customers Seek Privacy, AeroFS Emerges With Stealthy File Sharing Software

By Deborah Gage
The Wall Street Journal

Air Computing Inc., which is doing business as AeroFS, emerged publicly Friday with software that lets customers privately share files in a way that no outsider–not even their software provider—can gain access to their data.

The company has been working in stealth for about three-and-a-half years, since graduating from the Silicon Valley incubator Y Combinator in the summer of 2010, and has since raised a total of $5.5 million in funding, primarily from Avalon Ventures, Venture Capital Dispatch has learned.

It has also won some large corporate customers, including a financial services firm in New York that signed up for 1,000 seats, with virtually no marketing, according to co-founder and Chief Executive Yuri Sagalov.

Mr. Sagalov says he assumes customers are proactively searching for what AeroFS does. He also believes the media stories generated by former NSA contractor Edward Snowden on how the NSA secretly monitors and captures our data have only reinforced customers’ desire to find something like AeroFS.

“We have a lot of customers come from Germany. They say they can’t store stuff on American servers, but you’re just software so it’s OK,” he said.

AeroFS’s distinguishing feature is its ability to avoid putting files on servers or any other central location where they could potentially be seen. Files are instead synchronized directly between users’ machines, and because they don’t have to take extra trips between the machines and a server, the data can travel faster and the software can accommodate more users.

AeroFS was inspired by a simple idea—co-founder and Chief Technology Officer Weihan Wang’s desire to share photos and other material with his family in China while he was going to school in Canada—but it has grown into something much more.

About six months ago, AeroFS put its software into private beta with a few corporate customers. They were impressed, Mr. Sagalov said, but they wanted something that operated completely behind their corporate firewalls so that even their registration data wasn’t on AeroFS’s servers.

So AeroFS refined its software into a private cloud, which is also available Friday and which lets customers control their encryption keys and run and manage the software inside their companies.

“We don’t see anything,” he said.

Even though customers may use software from competitors like Dropbox Inc. or Box Inc. to store and manage some of their files, AeroFS is betting there will always be data that they want to keep private.

One next step is an Application Programming Interface so customers can build applications that run on top of AeroFS so they can collaborate on files in new ways.

“Some of the things (that will be built) we can’t yet imagine,” Mr. Sagalov said.

AeroFS may also raise another funding round next year, although much of the money it raised two years ago—a $4.5 million Series A led by Avalon in December 2011—is still in the bank.

But the company now has revenue, and it has room in its Palo Alto office to triple or quadruple its 12-person staff. Given the tough competition for engineers in the Bay Area, Mr. Sagalov said his biggest challenge is hiring.

Other investors in AeroFS include Y Combinator, Andreessen Horowitz, SV Angel and the Webb Investment Network started by former Bay Area tech executive Maynard Webb. Valuation is not disclosed.

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