StoneFly Officially Lands in DNF

One of the first IP SAN startups has been landed, following weeks of casting.

Dynamic Network Factory (DNF), a small systems company based in Hayward, Calif., today confirmed that it has acquired StoneFly, which will become a wholly owned subsidiary of DNF and continue to be based in San Diego.

News of the acquisition comes nearly two months after DNFs CEO insisted he was only making an investment and had no interest in running the iSCSI startup. (See StoneFly Fights for Survival.)

Seven weeks ago, Stonefly notified its shareholders that DNF planned to pay $205,000 for Stonefly’s assets. StoneFly execs said the startup had been looking for buyers since July and had received offers from DNF and another private company in northern California. A subsequent letter reported that the company -- formerly known as StoneFly Networks Inc. -- had dissolved. It has since reincorporated as Stonefly Inc.

When the letter went out, DNF CEO Mo Tahmasebi told Byte and Switch he intended to keep Stonefly as an independent company."I haven't applied for a job there [at StoneFly]. I already have one," Tahmasebi said in mid-December.

Even now, Tahmasebi claims he never intended to buy Stonefly in December, although evidence suggests the $205,000 payment was made to keep the startup going until DNF completed the purchase.

Tahmasebi would not disclose the acquisition price, but says it was substantially larger than the original $205,000 investment.

DNF intends to keep things going. StoneFly director of operations Dennis Hergert remains responsible for the StoneFly product line. Tahmasebi and Hergert say StoneFly will expand its product line from its current midrange and entry-level systems to configurations up to 100 TBytes per chassis, up from its current maximum of 12 TBytes now.

Tahmasebi claims DNF has been profitable for five years, selling mostly low-end and midrange NAS, SAN, and RAID storage systems. He says he can afford to invest in StoneFly’s product line.Still, StoneFly faces a tough road. While IP SAN revenues are on the upswing, industry sources note that StoneFly lags behind startups EqualLogic, LeftHand Networks, Intransa, and Sanrad, let alone iSCSI market leaders Network Appliance and EMC.

StoneFly, founded in April 2000, went on the block after failing to score VC funding for more than two years. StoneFly’s last funding round of $12 million came in July of 2003, bringing its total to $34 million. (See Startups Bask in Summer Sums.) Since then, EqualLogic, LeftHand, and Intransa have closed rounds of at least $20 million.

DNF began as a U.S. subsidiary of Japanese company CSK Electronics, and spun off as an independent company in 1999.

— Dave Raffo, Senior Editor, Byte and Switch

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