Storage '06 Funding Down

Four months into 2006, two trends for VC funding of storage startups have emerged.

First, fewer startups have received funding this year than at the same point as last year, although those that have picked up money have been getting more. Second, companies with "silver" in their name have been getting gold.

Eleven startups have pulled in $171 million through the first four months of 2006, compared to 16 funding rounds worth $235.5 million for the same period last year. Among those 11 have been Silverback Systems, Silver Peak Systems, and SilverStorm Technologies. (See Silverback Hoists $16M, Silver Peak Secures $13M, and SilverStorm Gathers Cash.) While that may be purely a coincidence, we're waiting for a rush of new storage firms calling themselves Silver something.

If the timing of the rounds from last year is any indication, we won't see much of an uptick the rest of the way for other startups. Last year, roughly half of startup funding took place between January and April. If that holds true in 2006, there will be around 22 funding rounds worth $332 million compared to 31 rounds for $470 million last year.

The rounds have been a bit bigger this year, but not by much. Bolstered by 3PAR's $30 million haul, the average 2006 funding round has been $15.5 million, compared to just under $15 million over the first four months of 2005. (See 3PAR Picks Up $30M .)After 3PAR's, The second largest round this year was virtualization software startup Incipient at $24 million. Continuous data protection (CDP) vendor Asempra was the other startup to pick up at least $20 million. (See Incipient Still Incipient and Asempra Assembles $20M .)

Through the first four months of 2005, Revivio and Chelsio grabbed $25 million rounds, and three others -- WAFS vendor Riverbed, consultancy Glasshouse Technologies, and Incipient -- had $20 million rounds. (See Revivio Revs Up With $25M, Colt Gets Certified, Riverbed Scores $20M, Neuf: Time Is Right for IPTV, and CyberGuard Reports Q2.)

There may be a couple of reasons for the drop-off in number of funding rounds. First, more startups are in late stages and eyeing the public markets. CommVault and Riverbed have filed for IPO, and a handful of others 3PAR, EqualLogic, LeftHand Networks, Isilon, and ONStor -- have publicly said they expect their most recent funding to be their last. (See Riverbed Makes It Official and CommVault's Taking the Plunge.)

Another factor cutting down VC funding: The acquisition spree from last year has continued. So far this year, Emulex has acquired chip maker Aarohi; Brocade bought file virtualization startup NuView; ADIC purchased data de-duplication vendor Rocksoft; QLogic grabbed InfiniBand component manufacturer Pathscale; Hewlett-Packard gobbled up database archiver OuterBay; Dynamic Network Factory (DNF) bought IP SAN vendor StoneFly Networks; and Microsoft swallowed iSCSI software startup String Bean Software -- removing seven firms from having to seek funding.

The funding has been spread over different technologies, but components startups have received a lot of attention this year. Storage processor startups Silverback and Aarohi completed long searches for either funding or a buyer, and QLogic spent $109 million to acquire Pathscale's InfiniBand components. (See Emulex Buys Aarohi and QLogic Bets on InfiniBand.)But not all chip players got funded or bought. Ammasso, which manufactured 1-Gbit/s iWARP (Internet Wide Area RDMA Protocol) adapters and was looking for funding late last year, apparently didn't make it. (See Component Startups at Crossroads.) The company's Website is no longer operational, its phones are disconnected, and industry sources say it is no longer in business. Perhaps it will reappear with a new name containing the word "silver."

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— Dave Raffo, Silver Editor, Byte and Switch

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