It's Raining VC Money

In 2004, average funding for storage companies has risen dramatically

February 20, 2004

6 Min Read
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What a difference a year makes. The $12 million in funding Candera Inc. pulled down this week (see Candera Closes $12M Round) is a nice chunk of change -- for 2003. As far as 2004 funding goes, it's starting to look like a pauper's sum.

Candera is the seventh storage company to announce funding since the start of the year. The seven have averaged $19.3 million, a substantial increase over the average funding round in the first two months of 2003 when 13 companies received $154.7 million -- or $11.9 million apiece.

Back in 2003, the biggest funding in the January/February timeframe was $26 million for 3ware Inc. (see 3ware Hits Reset Button). That would be tied for third on this years list with Maranti Networks, behind 3PAR Inc. ($32 million) and Egenera Inc. ($30 million).

Other companies funded this year include Zantaz Inc. ($20 million), Intransa Inc. ($8 million), and DataCore Software Corp. ($7 million).

Table 1: Storage Networking Startups 2004


Latest Funding


Total Raised






Disk-based storage






Maranti Networks




Intelligent switches





SAN management software





Blade server virtualization





Storage management services






So while nearly twice as many companies received funding over the same period last year, the average funding amount this year is nearly twice as high as in 2004. What does that mean? For starters, the financial outlook is brighter than it was a year ago. Also, the funding is going to more mature companies: All storage companies funded in 2004 so far have product shipping.

“Late-stage companies can reference customers -- that increases the pool of venture capital,” says Jeff Hinck, a Crescendo Ventures partner. “It’s easier for people to get their hands around.”

The startups funded so far this year have all gone through at least three funding rounds. A few say they’re close to profitability. Egenera CFO Tom Sheehan has gone so far as to say the company will consider going public this year. You didn’t hear the letters I-P-O spoken together much last year.

“It’s a matter of a better outlook. These companies have a better chance of surviving by standing alone or getting bought. It means more companies potentially going public -- but late this year or early next year,” says Steve Berg, senior research analyst at Punk Ziegel & Co.

Crescendo's Hinck suspects the market outlook has improved too much. “Valuations have gotten high again,” he says. “Too high. There seems to be a lot of crap getting funded.”So who's most likely to go public? Hinck votes for Egenera. "They’re the most natural candidate to go public. They have a strong revenue stream with their blade servers. I don’t know if there’s another storage company that could go out this year."

A Range of Outlooks

What's the outlook on other startups? SAN vendor 3PAR set a goal to become profitable within two years (see 3PAR Pockets $32 Million). That’s assuming it continues to double sales every six months and generates substantial repeat business from existing customers.

Maranti is trying to break into the ultra-competitive switching market, made all the more of a lion's den by the strong entry of Cisco as a key play. Maranti has yet to generate revenue, but CEO Debbie Miller says it's close. Miller just came aboard, having previously held the same post at Egenera (see Maranti Makes It to Market).

Zantaz used part of the $20 million it received last month to chow down email archiving software startup Educom. Educom’s product fits into Zantaz’s hosted compliance solution and provides another revenue stream -- possibly making Zantaz a palatable target for a larger company (see Zantaz Zips Up $20M and Zantaz Makes Compliance Buy).The other recently funded companies don't seem quite as far along as those just mentioned. After lining up only four customers since September with its original intelligent controller product, Candera last month rolled out an ATA backup appliance that it hopes can gain traction on price and ease-of use. Candera plans to use its new funding for sales, marketing, and product development. That's a big improvement from a year ago, when Candera was happy to get $2.5 million while struggling to get product out the door.

Intransa’s $8 million round in January is the smallest of the year so far, but it claims to have revenue from its iSCSI SAN system (see Intransa Inhales $8M). By pegging its future on IP SANs, Intransa will have to wait until the iSCSI market takes off to make a splash. That probably won’t happen until late 2004 at the earliest. Like Candera, Intransa also did better than a year ago when it raised $6 million without having any product.

Hinck for one doesn’t have high hopes for Candera and Intransa. “A lot of companies are big on ATA and iSCSI, but big deal,” he says. “There are no barriers to entry for the big guys doing that. All the problems that exist in storage today are management- and software-related.”

If true, that would leave SAN management software vendor DataCore in good shape. DataCore said it would use its recent funding to expand sales of its SANsymphony product, which has scored some customer wins recently. The company realigned its sales force last year, letting go of 20.

What became of startups funded early last year? Sistina Software, which grabbed $10 million in a second round in February 2003, was bought by Red Hat Inc. (Nasdaq: RHAT) in December (see Red Hat Snaps Up Sistina). Two companies, VIEO Inc. and NBT Technology Inc. (now Riverbed), moved out of storage into network application software.A handful, including SAN management startup AppIQ Corp., storage service provider ManagedStorage International Inc. (MSI), and data protection vendor NSI Software, remain alive and -- so far, anyway -- well in storage networking.

— Dave Raffo, Senior Editor, Byte and Switch

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