Top Ten Private Companies: Spring 2003

Here at last – is the all-new Byte and Switch Top Ten Private Companies list. Sorry about the delay, but it's only just stopped snowing here in New York (brrrrrrrrr) so our spring refresh is more like a late-winter pruning.

Zambeel Inc. for No. 1, then?

Well, probably not. We've had so many emails and calls about layoffs at Zambeel, once a promising next-gen NAS startup, it's hard to tell if there's anybody still there. (The latest word: "They let go all but three employees," according to one industry source.) The VCs are apparently "repositioning" the company in a "Gosh, didn't we tell you, we're a [insert latest trend] company?" mode. We had hoped the new direction might be bovine steroids or a new no-bake pasta, perhaps, but sources say Zambeel will be a pure software play or possibly do something with Serial ATA. Booooo-ring! (See SAN Startups on the Block and Zambeel COO Skedaddles.)

How about TrueSAN Networks Inc. for No. 2? [Ed. note: Don't be NASty! Or SANty!] (See Source: CNT Nixed TrueSAN Bid and TrueSAN Goes Belly-Up.)

Cutting to the real news, here are the highlights of our newest Top Ten list of storage networking startups:

Two honorable mentions are in order for two startups that just missed making the list (this time) and are worth keeping an eye on: Sistina Software Inc., makers of a clustered file system based on Linux, and EqualLogic Inc., a maker of IP SAN storage arrays.

Wait a second! you might expostulate. Linux?! Don't worry, we haven't turned into tree-hugging hippies just yet. But there's plenty of evidence to show that Linux is making headway in the enterprise. One of IBM Corp.'s (NYSE: IBM) biggest resellers, Mainline Information Systems, is reselling Sistina's software; and the startup is not short of cash either, having just landed $10 million in Series B funding in February, following strong customer traction (see Sistina Seeds Growth).

Meanwhile, EqualLogic doesn't technically have any paying customers yet for its so-called "self-managing" storage arrays on iSCSI. But the Nashua, N.H., startup has shipped its box to several beta customers, including a major bank that told us they were very impressed with it (see EqualLogic Draws Bank's Interest). With the iSCSI specification now approved and endorsed by Microsoft, there's little standing in the way of its adoption. And EqualLogic has done enough to win the support of three major VCs, including Charles River Ventures, TD Capital Technology Ventures, and Sigma Partners, which stumped up $15 million for EqualLogic last month (see EqualLogic Tallies $15M).

As always, this Top Ten list follows the rules we've already established, including the precondition that all of these companies must have shipping products and revenue-producing customers. Tricksssssy startupsssss in ssssstealth need not apply (see our previous list, Top Ten Private Companies: The Fall Lineup).

Disagree with our choices? Tough luck. Come up with up some better picks and post them to our message boards. And of course, keep the insider information coming – we love that.For a full writeup of who's on and who's off the list, click on the name of a company below:

Table 1: Top Ten Private Storage Networking Companies

— The Editors, Byte and Switch

Shooting up eight places to steal the No. 1 spot is LeftHand Networks, following consistent customer traction and a ton of new funding.

LeftHand, which makes Ethernet-based storage arrays, just won $20 million in a Series B round, bringing its total equity investment to date to $39 million. VCs backing the Boulder, Colo., startup say the solid quarter-after-quarter sales uptick convinced them to step up their support of the company (see LeftHand Snatches $20M).It’s hard to argue with these recent customer wins:

Previous customers include Lockheed Martin Corp., Array BioPharma, and the City and County of Denver (see Engineers Take LeftHand Turn).

The management team at LeftHand is a reliable, seasoned bunch, too, which certainly helps. Bill Chambers, founder, president, and CEO was formerly president and CEO of General Electric's Asia/Pacific-based technology businesses and has held key management positions in both startups and Fortune 500 companies. John Spiers, founder and CTO, was director of engineering at Maxtor Corp. (NYSE: MXO). David Bangs, VP of sales and marketing, was most recently VP of Americas sales at Quantum Corp. (NYSE: DSS); and Dr. Mark Hayden, chief software architect, founded North Fork, which LeftHand acquired last year (see LeftHand Grabs North Fork).

And did we mention that two of Byte and Switch's editors are left-handed? We're huge fans of all things sinistral. The story behind the company's name, by the way, is that the founders were out one evening enjoying some liquid gold produced by the Left Hand Brewing Co., based in Longmont, Colo. The name clicked, and it stuck. (Things might have been worse. They could have been knocking back the Old Peculier.)

The one criticism we do have of LeftHand is its reluctance so far to support iSCSI. It uses a proprietary technology, the Advanced Ethernet Block Storage (AEBS) protocol, rather than the Internet Engineering Task Force (IETF) specification. Customers must load LeftHand's AEBS software on their servers, and it enables various storage virtualization services. Company executives say once iSCSI gains acceptance LeftHand will support it, but we generally prefer champions of new technology rather than stragglers.

Still, in LeftHand’s case, lack of iSCSI support clearly isn’t holding the company back yet.Nishan Systems Inc. is another one shooting up the table, rising from No. 6 to No. 2 on the back of several important partnerships, most notably with EMC Corp. (NYSE: EMC).

Getting a qualification and reseller deal going with the Hopkinton giant is no walk in the park. In fact, it took Nishan more than a year to get certified, according to Tom Clark, director of technical marketing at Nishan. Once on EMC's compatibility list however, field sales opportunities become much easier, Clark says (see Nishan OK'd for EMC SAN Copy, IP Storage Has a Pulse, and EMC Blesses Nishan).

Nishan has also recently partnered with Storage Technology Corp. (StorageTek) (NYSE: STK), Inrange Technologies Corp. (Nasdaq: INRG), and NEC Electronics Corp.. In addition, Nishan has a reseller deal with Hitachi Data Systems (HDS) (see NEC Japan to Resell Nishan, Inrange to Resell Nishan, and Nishan's All Good for StorageTek).

So what’s with the change in attitude at Nishan? If you remember, this was the company that was going to kill Fibre Channel and take over the world!

Incoming CEO Rob Russo has stamped out this nonsense-talk just in time. When it came to partnering, industry watchers wondered if Nishan had any friends left to win, but it looks as if Russo is pulling some strings (see our interview with Russo and Nishan Guns for IPO).Nishan is also signing some unusual and interesting deals, including one in which it helped erect a wireless SAN in the frozen flatlands of Manitoba. For sheer ingenuity this deserves a move up our list (see Credit Union Erects Wireless SAN).

One caveat about Nishan is that CTO and VP of engineering Chris Eidler left unexpectedly, earlier this month. One Nishan insider told us simply, "People come, people go." We think it indicates Russo's sales push is the company's priority for the foreseeable future, but we'll have to see where Nishan's technology vision is headed (see Nishan CTO Cuts Out).

BlueArc Corp. slips down a couple of spots to No. 3, not because the company has done anything egregiously wrong per se, but because it's become the punching bag of our Top 10 list: Up, down, up – d'oh! down again!

Lately, it struck us that BlueArc's great fights all appear to be behind it. The company has come to resemble someone stepping into a pair of slippers and lighting a pipe. It’s obvious what’s happening. This once-sizzling startup is settling down into the daily grind of building a business. And the sparkle has dimmed.

Witness BlueArc's latest announcement, a "keeping-up-with-the-neighbors" effort in which it launched an ATA drive option for its Si8000-series SiliconServers this month. Every storage hardware vendor on the planet is offering ATA drives now, and to announce this after everyone else is just a bit sad. Startups are supposed to be ahead of the curve, not behind it (see BlueArc Gets Cheap).Our other niggling issue with BlueArc is that the majority of its sales are in the high-performance computing (HPC) area, which isn’t a huge sector. And, should EMC Corp. (NYSE: EMC) or Network Appliance Inc. (Nasdaq: NTAP) decide to redouble their efforts in this space down the road, BlueArc could be in trouble.

For now, though, the company is still winning deals, increasing headcount, and holding its own. For this reason, BlueArc continues to merit a place in our top five.

Staying put at No. 4 is NAS virtualization software startup NuView Inc.

NuView is the only company in the known universe doing what it’s doing. Its product, StorageX, acts as a kind of metadirectory for NAS namespaces, providing an abstraction layer that allows an administrator to modify or move NAS servers without needing to change how users gain access to them. The software, which runs on a Windows 2000 server, also provides a consolidated view of multiple NAS devices. The latest version supports the Network File Systems (NFS) protocol, opening the product up to the Unix world, which was a crucial move for the company (see NuView Fills Out).

The startup has landed more than 10 large customers, including Extreme Networks Inc. (Nasdaq: EXTR), Lockheed Martin Corp., T. Rowe Price, and Unocal Corp., which have bought and installed the software for a variety of uses, including namespace management, NAS consolidation, and providing failover for Windows servers. NuView apparently has plenty more customers up its sleeve, courtesy of its OEM relationship with Network Appliance Inc. (Nasdaq: NTAP), but it's prohibited from naming these.Rumor has it the company is also working on a major "OEM for an OEM" deal [ed. note: whatever that is]. One source suggests CEO Rahul Mehta could be looking to build a real operating company out of this NuView rather than selling it, as he has his previous three. [Ed. note: Is he nuts?]

Either way, NuView is here to stay and worth watching.

Like BlueArc, DataCore Software Corp. appears to be settling into comfy-slippers mode, so we’ve downgraded it to No. 5.

There doesn’t appear to be much innovation going on at this company lately. The last significant upgrade to DataCore’s storage management virtualization software was SANsymphony 5.0 in January 2002 (see DataCore Ships SAN Management).

The focus is clearly revenue generation. And this is obviously critical, especially if you are gunning for an IPO – which, rumor has it, DataCore is. However, longer term, is there a standalone market for virtualization technology? It's not clear at this point, but most analysts think not.And even if DataCore is shooting for an IPO (if and when the market will eventually support one) a public company must do more than prove to Wall Street that it can increase sales quarter-over-quarter. Providing direction on future growth opportunities is important, too.

Another concern we have with DataCore is how many of its "reseller partnerships" are actually turning in sales of its software, as opposed to the reseller simply paying lip service to its technology. It’s hard to tell, as the company doesn’t split out where its sales are coming from (see DataCore OK for IBM Servers, Datalink to Resell DataCore Software, IBM Gives DataCore the Nod, DataCore Scores Hitachi, at Last, DataCore Scores MTI, and IBM Signs Sneaky DataCore Deal).

That said, DataCore remains in good shape and deserves to be in the top five as it continues to win deals, with or without the help of its partners (see UK Water Firm Pipes in DataCore, Spanish Grocer Picks DataCore, Banks Bank on DataCore, and DataCore Wins Wasatch).

Sliding down a notch to No. 6 is CommVault Systems Inc., which is doing OK despite the challenges it faces in the backup market. The company is cranking up the capabilities of its backup software to target new areas, including "information lifecycle management" and grid computing (see CommVault Debuts GridStor and CommVault Ships QiNetix 4.2).

These are fine concepts, but it will be at least a year or more before anyone starts to buy into them. Meanwhile, CommVault must build its business in a market that’s only growing 5 percent a year. It can take share from Veritas Software Corp. (Nasdaq: VRTS), the dominant provider, but that’s a tough job.Still, the Microsoft Corp.-backed startup appears to be doing well finding customers. For the quarter ended December 2002, it announced 138 new wins, including eBay, Federated Insurance, Liz Claiborne, Boston University, CompuCom, and Hitachi Data Systems (HDS) (see CommVault Scores 138 More).

CommVault has plenty of deals on the table and can comfortably pay its bills, but it faces some interesting challenges as it seeks to grow going forward.

Steaming in to take the No. 7 position is ManagedStorage International Inc. (MSI) – a storage service provider (SSP), no less! But an SSP with a twist.

Unlike the dozen or so storage service providers – or SSPs as they are known in storage circles – that went belly-up last year because they had stupid business models, MSI actually has a good one (see SSPs: RIP).

In essence, it provides managed backup and restore services for businesses that want to keep a copy of their data offsite. The first bunch of SSPs – StorageNetworks Inc. (Nasdaq: STOR) among them – wanted to take over the management of all the data stored within an organization, but it turned out very few companies were willing to give up this control.MSI’s approach is paying handsome dividends. The Broomfield, Colo. company, formed in April 2000 as a spinoff of Storage Technology Corp. (StorageTek) (NYSE: STK), has almost 700 customers under its belt in the U.S.; it's expanding into Europe; and it recently landed $22 million in additional funding (see MSI Rolls Into Europe, MSI Springs on $22M).

It’s easy to see why MSI is having success. Backup is an extremely dull task, and an alarming number of companies do not perform daily backups of all their data. Furthermore, very few backup jobs are successfully completed and fewer than 50 percent of restore attempts are successful, according to Gartner Inc. Stepping in is third-party backup provider MSI to take this mindless job off your hands.

Obviously there are plenty of companies, like financial institutions, that legally can’t hand over their data to just anyone, so this kind of service is out of the question for them. But for the majority of companies, having someone else do a decent job ensuring the safety of your backups sounds like a good move to us.

And check out who’s running this firm. CEO Tom Sweeney was formerly VP of strategic alliances and global sales at Level 3 Communications Inc. (Nasdaq: LVLT) and, before that, senior VP of global marketing at WorldCom Inc. (OTC: WCOEQ), so his track record checks out. Sorta. [Ed. note: If you like hanging out in bankruptcy courts!] Hey, you can’t blame Tom for the U.S. telecom market collapsing. MSI’s CTO, Walt Hinton, was formerly VP and general manager at StorageTek.

MSI's closest competitors – outside of the major carriers that are beginning to check out this space – include Arsenal Digital Solutions Worldwide Inc., AmeriVault, and LiveVault Corp., which are also proving the model works (see Arsenal Restocks Its Coffers).Coming in at No. 8 is another newcomer, AppIQ Corp., the SAN management software startup that has become one of the central players in the industry's move to standards.

Early on, AppIQ based its software architecture on the Common Information Model (CIM). According to founder and CTO Ash Ashutosh, this wasn't because it had the foresight that CIM would become the industry standard for storage networking management (which it has) but because CIM provided a more efficient development platform for supporting multiple devices.

Once the Storage Networking Industry Association (SNIA) made CIM the basis of its management standards, AppIQ found itself in exactly the right place at the right time. In other words, it was lucky [ed. note: a common theme of all great success stories!]. (See Storage Standards Solidify.)

The Burlington, Mass., startup has now licensed its CIM-based code to several top storage networking vendors, including:

It's also working with Hewlett-Packard Co. (NYSE: HPQ) to test the CIM provider HP developed for its StorageWorks arrays (see AppIQ Validates HP's CIM and AppIQ Has a Clue).

But CIM remains a means to an end for AppIQ. The startup is actually selling product: It has officially announced its first paying customer, the Boston Stock Exchange (BSE), a big EMC shop (see Boston Stock Exchange Picks AppIQ).The company claims it's going to really haul ass with version 2.0 of its software suite, due out in June, which will add automation and policy-based management features. CEO Dave Lemont says its CIM-based platform allows AppIQ to concentrate on higher-level features, unlike other storage resource management (SRM) players that must spend a considerable amount of time and effort writing (and maintaining) device-specific code. For example, now that AppIQ has a formula down, one of its engineers took just four weeks to write a CIM provider for EMC Corp.'s (NYSE: EMC) Clariion storage line, a process that used to take up to three months for other devices, the company claims.

Founded in July 2001, AppIQ has pulled in $20 million to date, looking nicely set on the funding front (see AppIQ Scoops Loot). Its management team appears to have the technology and business acumen to fire on all cylinders. CTO Ashutosh was previously senior VP of advanced technology at StorageNetworks Inc. (Nasdaq: STOR) [ed. note: he got out just in time!] and before that founded Blue Spruce Networks, a small virtualization switch company bought by Pirus Networks (which was itself bought by Sun Microsystems Inc. [Nasdaq: SUNW]). Lemont, a recent recruit, has a long history of selling enterprise software at Revit Technology Corp. (bought by Autodesk Inc.), Concentra Corp. (bought by Oracle Corp. [Nasdaq: ORCL]), and Electronic Data Systems Corp. (EDS) (bought by no one, so far).

Can AppIQ stay in the game? The cards are falling so far for the CIM posse!

Dipping one spot is storage services startup GlassHouse Technologies Inc., which is still racking up customers and hiring more staff (see GlassHouse Hires Sales SVP, GlassHouse Hires Sales Guy, and GlassHouse Breaks Into NYC).

In our opinion, the timing for an independent storage services company is perfect. There’s been a mountain of investment in new technology, which has to be integrated with legacy equipment; the economy still sucks, which means businesses can’t afford to invest in new gear and so need help making better use of what they have; and new standards like iSCSI and CIM often leave customers in a tangle when they make impulse purchases without knowing exactly what they are buying.As one of the only independent SAN services firms out there, GlassHouse stands a good chance of cleaning up. If only it didn't have to compete with the pesky professional services arms of EMC Corp. (NYSE: EMC) and IBM Corp. (NYSE: IBM).

For now, the GlassHouse is definitely half full, so it stays on the list for now.

We were all set to drop 3PARdata Inc. back into the Bit Bucket again when it received a last-minute stay of execution.

CEO David Scott argues his case that 3PAR is demonstrating staying power: In just over two quarters of shipping its product, he says, 3PAR has sold 20 systems to 13 customers, with average configurations greater than 5 Tbytes. The average selling price of each system is "hundreds of thousands of dollars, so we are generating substantial revenue," he says (see 3PAR Sells 20 Systems).

Its customer list includes:

Veritas, Scott notes, has made repeat purchases for different business units (though it must be noted that Veritas is a 3PAR investor).Well, good for you, 3PAR. But here's the thing: All the current market dynamics are aligned against this company. It has built a super-high-end, expensive storage array, when the rest of the industry is moving toward low-cost, midrange systems. Not only that, businesses are looking more towards software to better utilize the storage they have – rather than buying more hardware.

Also, EMC Corp. (NYSE: EMC) finally got its act together and released the next version of its high-end Symmetrix arrays in February, which steps up the competition for 3PAR (see Does EMC's DMX Measure Up?).

In fact, the odds of 3PAR being acquired by any of the top five systems vendors looks increasingly slim. Hewlett-Packard Co. (NYSE: HPQ) relies on Hitachi Data Systems (HDS) at the high end, as does Sun Microsystems Inc. (Nasdaq: SUNW); while IBM Corp. (NYSE: IBM) recently merged its server and storage groups and seems to be focusing more of its attention on software and services (see IBM Merges Storage, Server Groups).

3PAR may be hanging on to the No. 10 spot by its bloodied fingernails, but hanging on it is.

Now to the two startups that have been dumped from the list: OuterBay Technologies Inc and InterSAN Inc.OuterBay's specialized software for moving data in and out of Oracle Corp. (Nasdaq: ORCL) databases, isn't so special anymore. Everyone, including the established software vendors, are doing it now, which makes OuterBay's task all the more difficult. At least one other startup, Princeton Softech Inc., offers the same software; and about 20 other companies are tackling the provisioning issue in different ways (see Policy-Based Storage).

For this reason, OuterBay will lie low in the Bit Bucket for a while, until the market makes up its mind how this functionality should be deployed.

Meanwhile, SAN management software player InterSAN is another one fighting for air in an overcrowded market. Its software falls into the storage resource management (SRM), device discovery, and virtualization markets, all being subsumed into storage management by larger players like Computer Associates International Inc. (CA) (NYSE: CA) and Veritas Software Corp. (Nasdaq: VRTS).

Battling the big guys will get harder and harder for the startups, particularly those like InterSAN (a former No. 1 on our list) that started early and are getting squeezed financially. Customer announcements from InterSAN seem to be thin on the ground these days, too, and now we've heard that it's looking for a CEO to try to turn things around (see Who's In at InterSAN?