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One Way Out: Page 2 of 4

They watched and did nothing. Engenio backed out after pricing shares, and nobody else has come close (see Engenio Gets Cold Feet).

These days, the best exit strategy is an acquisition, and who can blame startups? Since 2003, we've seen purchase prices such as EMC Corp.’s (NYSE: EMC)
$1.7 billion for Documentum and $1.3 billion for Legato, and Veritas Software Corp.’s (Nasdaq: VRTS) $609 million for Precise. In the last two months, Network Appliance Inc. (Nasdaq: NTAP) bought Decru for $272 million, and Cisco Systems Inc. (Nasdaq: CSCO) got Topspin for $250 million.

These rich payouts don’t necessarily bode well for the industry, though. When companies go public, they bring new money into the sector and create a buzz about the technology. That makes it easier to attract investors for other storage companies. Industries get stale when companies fail to hit the secondary markets.

Startups certainly like giving investors and potential customers the impression they want to go public rather than get acquired. It's the "year or so" syndrome: Execs talk about becoming cash positive and exploring the public markets "in a year or so." In a year or so, those startups (if they're still around) say the same thing. And so forth. No one expresses hopes of doing well enough to get bought up. Until they get an offer.

Is there an end in sight to the IPO drought? Few storage startups will say much about going public this year. There certainly are some good candidates. Software startups AppIQ Inc., CommVault, and Softek; systems vendors Engenio, EqualLogic Inc., Isilon Systems, LeftHand Networks Inc., and Xiotech; consultant GlassHouse Technologies Inc.; and service provider Arsenal Digital Solutions Worldwide Inc. have shown they can stand on their own. Some of them are likely profitable, waiting only for the market to improve before trying to go public.