Modular Data Center Startup Keystone NAP Raises $15M

It has not been easy to secure financing for a data center services startup in recent years, and few have managed to pull it off. While institutional investors are more familiar with the data center provider market than they were in the past, and there is a lot of interest in investing in providers, the preference usually goes to established companies who already have tenants with good credit ratings and positive cash flow.

Keystone NAP, operator of the modular data center on the site of a former steel mill in Pennsylvania, is one of the few new data center providers that have managed to raise capital. The company is expected to become profitable this year, its president John Parker said.

The data center provider announced its latest funding round this week: a $15 million debt facility with White Oak Global Advisors, which brings its total to $27.5 million, consisting of a combination of debt and private equity.

“The capital market is favorable,” Parker said. “We’re a startup, so that presents additional challenges, but I think the market is favorable.”

The data center industry has a lot of attributes lenders like, and Keystone has shown its ability to land enterprise-grade customers for multi-year leases. Customers like major financial institutions and healthcare organizations are “the types of buyers in this market that I think carry a lot of weight with lenders,” he said. “That’s really the key element.”

Because of confidentiality agreements, Keystone cannot name its marquee financial services client, saying only that it’s a major firm based in New Jersey. Its poster healthcare customer is Aria Health, which recently merged with Thomas Jefferson University. It is northeast Philadelphia’s largest healthcare provider, which operates three hospitals and a network of outpatient centers and primary healthcare physicians.

Modular Data Center with Virtually Limitless Power

Keystone’s facility is a repurposed building in a 3,500-acre business park in Fairless Hills, called Keystone Industrial Port Complex, where the company is using the modular data center approach to expand capacity gradually. Schneider Electric manufactures the modules, which it designed together with the data center provider.

Each module can hold up to 22 IT racks, and modules can be stacked on top of each other. Keystone’s data center design provides for six-module blocks, each of them consisting of two adjacent three-module stacks.

Keystone NAP uses a 50-ton crane in the building to move the modules and customer equipment. Upper-level modules are accessible by stairs. (Photo: Keystone NAP)

The first module arrived to the site in late 2015. Six are up and running today. The time to get a module manufactured, shipped, and commissioned varies, but it’s safe to expect a 90-day delivery, from commitment to live date, Parker said.

Keystone’s site has capacity to house and support 30 times its current load, or up to 180 modules total, which would include the current building and an expansion. Because it’s on a site of a former steel mill, it has access to a virtually limitless amount of power as far as data centers are concerned. “We really don’t have a capacity limit,” Parker said. “It’s just a matter of continuing to add transformers.”

Flexible Infrastructure, Managed Services

The company offers flexibility in power density and level of infrastructure redundancy – both capabilities all data center providers will have to have in the future. Fewer and fewer customers are content with colocation deals that lock them into a single power density, while more and more customers are looking at their application uptime needs more intelligently, looking for lower-cost lower-redundancy data center infrastructure to run non-critical apps on.

Another trend Keystone is taking advantage of is the growing amount of enterprise customers looking for full-service data center providers, who will help them set up things like network connectivity, disaster recovery, security, and cloud. Keystone acts as a managed service provider in addition to providing data center capacity to cater to those needs.

Aria Health, for example, is using the provider’s colocation services, managed virtual disaster recovery, cloud services provided by one of Keystone’s partners, and IP network and bandwidth services to its three main hospitals.

No Relation to Steel Orca

The Keystone NAP data center is in the same business park where another data center provider, called Steel Orca, attempted and failed to establish a data center. Steel Orca was going to build a greenfield data center there, but the project never got off the ground, and the company filed for bankruptcy last year.

Parker, who provided some outside counseling services to Steel Orca, said there was no connection between the two companies and their respective data center projects.