Minneapolis software firm gets $52.5M in venture capital

In one of the largest venture capital deals in Minnesota's history, Code 42 Software Inc. said Tuesday it raised $52.5 million in venture capital from local and national investors.

Accel Partners and Split Rock Partners, which provided the funding, now have a minority stake in Code 42, which provides backup software and data storage to major corporations. Experts say the size of the deal underscores the strength in the area's technology sector.

"It's a great sign that tech is not dead in Minnesota by any stretch," said Dan Carr, CEO of the Collaborative, a group that links entrepreneurs with investors. "Code 42 has a proven [business] model. It's a testament to them that they are building that kind of enterprise in Minnesota."

Michael Gorman, a managing partner at Split Rock Partners, called the deal "seismic" and shows that companies don't have to be in Silicon Valley to get rewarded.

"Technological innovation is alive and well in Minnesota," Gorman said.

Split Rock has offices in Eden Prairie and Menlo Park, Calif. Accel, the lead investor, has U.S. offices in Palo Alto, Calif. and New York.

The money would go toward expanding the company's sales and marketing globally, Code 42 CEO Matthew Dornquast said. The Minneapolis outfit has seen massive growth in the use of computing devices, and with it, an increased need to protect the information on them.

Code 42 has 86 employees and expects to employ more than 150 people by the end of the year. The company's customers include Google, Apple and Adobe. Code 42 declined to disclose annual sales.

Prior to receiving venture capital, Code 42 had been self-funded. Dornquast, who is passionate about expanding Minnesota's tech community, said the deal doesn't require the company to relocate or be sold.

"Our headquarters and heart is here in Minnesota," Dornquast said. "The expectation is to do really well in Minnesota."

PricewaterhouseCoopers and the National Venture Capital Association said the Code 42 deal is the ninth-largest since 1995, when the groups started tracking venture capital transactions.

Mark Scholtes, a partner at PwC, said Code 42's deal follows a national trend of venture capital firms investing in companies that are well-developed instead of start-ups with unproven business models.