OnStor OnTap for $24M

ONStor Inc. will become one of the best-funded NAS startups when it closes a $24 million round this week. But its battle for survival could be the toughest.

OnStors fourth round brings total funding to $79 million, which the company will use to beef up support and expand its sales channel. Marketing VP Jon Toor says this is the last trip to the VC well. "We’re confident we’ll get to breakeven with this funding,” he says.

OnStor has averaged two new customers a week since rolling out its Bobcat NAS gateway in January, Toor claims, and, including buyers of its previous gateway, the startup has around 100 customers total (see ONStor Hits NAS Gas and ONStor Peddles SAN Consolidation).

Though Network Appliance Inc. (Nasdaq: NTAP) and EMC Corp. (NYSE: EMC) still dominate the NAS market, startups are staking their ground. Isilon Systems grabbed $20 million in funding last week; BlueArc Corp. rolled out software enhancements and got a commitment from investors to put up cash as needed; and PolyServe Inc. scored an OEM deal with Hewlett-Packard Co. (NYSE: HPQ). (See Isilon Lays On $20M Icing, BlueArc Branches Out, and HP Upgrade Features OEM Crowd.)

From a competitive standpoint, OnStor faces the most daunting task of the private NAS contenders. While BlueArc and Isilon focus on vertical markets, and PolyServe has HP behind it, OnStor is a general-purpose NAS vendor that goes head-to-head with NetApp and EMC. “The competition has been intense since day one,” Toor says. “We don’t go after high-performance computing or niche markets.”OnStor competes primarily through interoperability with SAN vendors. Although NetApp has recently pledged gateway support for other vendors’ hardware, it doesn’t support EMC (see NetApp Makes Virtual Upgrade). And EMC’s NAS gateways work only with its own SAN arrays. OnStor, in contrast, supports SAN arrays from EMC, Hitachi Data Systems (HDS), HP, IBM Corp. (NYSE: IBM), Sun Microsystems Inc. (Nasdaq: SUNW), and other smaller vendors. For management, OnStor uses what it calls virtual servers that allow storage to be managed from one pool.

OnStor must expand its sales channel to succeed. Toor says it will add to its international channel, which now includes partners in the U.K. and Japan. He also expects to add sales and support personnel as well as channel partners in the United States.

Can it survive in a NAS world dominated by NetApp and EMC? A handful of VCs are betting on it. ComVentures led the latest funding round with previous investors Mayfield, Foundation Capital, and WorldView Technology Partners participating. ComVentures partner Jeb Miller rejoins OnStor’s board. Miller sat on the board when he was at Worldview before jumping to ComVentures.

— Dave Raffo, Senior Editor, Byte and Switch