Data storage software maker OuterBay Technologies Inc. has landed $12 million in Series C financing from previous investors and new lead investor Focus Ventures of Palo Alto, Calif.

Focus contributed $4.2 million to the round, which increased OuterBay's valuation by an undisclosed amount. Previous investors BA Venture Partners in Foster City, Calif., and LeapFrog Ventures, Mayfield and Redpoint Ventures, all based in Menlo Park, Calif., also participated.

The financing brings OuterBay's total investment to $40 million. Palo Alto-based law firm Wilson Sonsini Goodrich & Rosati PC represented OuterBay in the financing.

The Cupertino, Calif.-based company makes software that helps automate the data storage process. So-called information life cycle management companies such as OuterBay help customers prioritize data that needs to be stored and then automatically shuffle that data to the most cost-appropriate storage.

Steve Bird, a general partner at Focus Ventures, said his firm had been looking for investments in companies that provide more efficient storage for quite some time when Leapfrog Ventures introduced Focus to OuterBay.

"We think that enterprises are really struggling today trying to rationalize their storage environments, and we thought OuterBay had a very unique technology which allows enterprises to reduce storage demands and server requirements," Bird said.

Michael Howard, president and CEO of OuterBay, could not be reached for comment, but a company statement said the round will help the 8-year-old company reach profitability. The company statement also said the funding would be used to expand OuterBay's operations.

Mike Karp, senior analyst with Boulder, Colo.-based software research firm Enterprise Management Associates Inc., said OuterBay's technology is sound and the company has had success so far in a very competitive market. He said OuterBay's existing partnership with data storage software powerhouse EMC Corp. in Hopkinton, Mass., could provide a good source for customer wins and even a potential exit.

"With $40 million they are competing for visibility in a market that contains Computer Associates [International Inc.], IBM [Corp.] and Hewlett-Packard [Co.], and I would think that one possibility might be an acquisition by EMC," Karp said. "EMC has deep pockets and a history of buying their way into a marketplace."

While Karp said an EMC purchase of the startup is just speculation, the storage company has made several purchases in the past year, buying information management company Smarts Inc. in December for $260 million in cash and Walnut Creek, Calif.-based backup software company Dantz Development Corp. for less than $50 million in October.

In 2003, EMC used $3 billion in stock to purchase Pleasanton, Calif.'s Documentum Inc. and Mountain View, Calif.-based Legato Systems Inc., which gave EMC its presence in the information life cycle management market. Focus Ventures' Bird doesn't discount the potential for an acquisition, especially given OuterBay's rapid customer growth and interest from several partners - including a potential partnership with a "major computer manufacturer," he hinted, without disclosing the name of the company.

"I think there's a roughly 50% chance OuterBay could get big enough to go public, or else one of the major players in the storage industry might acquire them," Bird said. "They are growing pretty rapidly, and their partnerships with EMC and Sybase [Inc.] make them pretty interesting."

Current OuterBay customers include ArvinMeritor Inc. in Troy, Mich., Motorola Inc. in Schaumburg, Ill., and Sun Microsystems Inc. in Santa Clara, Calif. Its competitors, however, are also formidable, including San Francisco-based Embarcadero Technologies Inc., Houston-based BMC Software Inc. and Irvine, Calif.-based Quest Software Inc., as well as divisions within Armonk, N.Y.-based IBM and Islandia, N.Y.-based Computer Associates.