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Startup finds funding XActional secures $2.5 million

By CHRISTINA DYRNESS, Staff Writer
DURHAM -- XActional, a startup developing technology to make online exchanges of critical corporate data more secure, raised $2.5 million in venture capital -- a sign of life in what has been a quiet market for new software companies.
And the investment is notable as it was made in an infant company without a product to sell, a move that venture capitalists have balked at in the post-dot-bomb era.

But XActional had four things going for it: three experienced founders who are plugged into the local venture-capital community and one compelling business idea.

The company will use the money to fund development of its software and win a few early customers. David Logan, XActional's president, said the company will likely seek additional venture capital next year.

Logan moved to the Triangle last year from Silicon Valley, where he worked at a number of startups. He formed XActional with David Motsinger, co-founder and chief executive officer of Cary-based GadgetSpace, a wireless software company acquired by InPhonic of Washington in 2001; and Ken Gramley, co-founder and vice president of engineering at Research Triangle Park networking startup Hatteras Networks.

Investors in XActional, which used office space and ample advice from Durham-based Aurora Funds from November until May, include Aurora, Intersouth Partners of Durham and NextPoint Partners of Washington.

Logan said XActional contacted potential customers before developing its technology. With corporate software becoming more and more Web-based, large companies find themselves sending crucial information via the Internet, giving rise to security concerns.

XActional, which has nine employees in Durham and plans to grow to 15 by the end of the year, is developing software to address those concerns.

The product and how it will work is still under wraps. John Glushik, principal with Durham-based Intersouth Partners, said, "It's an approach to enterprise security that is not being tried, to our knowledge."

It was an attractive enough prospect to rate as Intersouth's first investment from its new $205 million fund, which closed in February. Glushik explained that Logan worked closely with the investors at Intersouth at every step as he put the company together, making it an easier investment to make.

"We've been pointing to this deal when people ask how to develop a relationship with a venture fund," Glushik said. "It makes it much easier."

Kip Frey, an Intersouth venture partner and experienced software entrepreneur, will sit on XActional's board of directors, along with Rich Brown of the Aurora Funds and Jonathan E. Peskoff of NextPoint Partners.

"The key thing for us was the care team was in place," Brown said. "And they were people we had sort of seen in action."

 

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