Cisco Walks a NeoPath

Cisco is ready to sink money into file virtualization startup NeoPath, although the extent of the relationship remains unclear.

Neither company would comment on an impending deal, but a source close to NeoPath says Cisco will invest an undisclosed amount in the startup's next funding round, which will probably total in the $12 million to $15 million range.

Separately, there are others whispering that the round also includes an OEM deal and a right of first refusal for Cisco to buy the company.

Not so, says the NeoPath source. "Thats 100 percent false," the source says. "They don't have an OEM deal or right of first refusal. Would NeoPath like an OEM deal down the road? Sure. But there's nothing discussed yet, and there's no talk of a sale. All of NeoPath's previous investors are also involved in the funding."

NeoPath's product manages files stored across different NAS systems as one big pool, using virtual namespace and load balancing. The technology has been in demand over the last couple of years.When NeoPath first started shipping its product in late 2004, its main competitors were Acopia Networks, NuView, and Rainfinity. EMC acquired Rainfinity for $90 million last August and is in the process of integrating its technology into its NAS systems. Cisco SAN switch rival Brocade scooped up NuView for $60 million in March. (See Brocade Bags NuView.)

The feeding frenzy on file virtualization startups actually began in November 2003 when Network Appliance acquired Spinnaker Networks for $360 million. (See NetApp Annexes Spinnaker.)

If Cisco buys or OEMs NeoPath, it would compete on several fronts with Brocade outside of Fibre Channel switching. Like Brocade -- which has an OEM deal to sell wide area file services (WAFS) from Tacit Networks -- Cisco has WAFS technology through acquisitions of Actona and FineGround. (See Brocade Invests in Tacit, PCS Digital Picks Tecnomen and Cisco Acts on Actona.) And NeoPath would give Cisco file virtualization to match Brocade.

One storage analyst, who asked not to be named, says NeoPath makes even more sense for Cisco than NuView for Brocade, because Cisco has a strong Ethernet switching business. "Their interest is to have the ecosystem around the NAS environment," the analyst says of Cisco. "They offer Actona around the remote office, and NeoPath in the data center to address the sprawl. Also, what sits [next] to most NAS systems? The Ethernet switch."

One financial analyst thinks it wouldn't make sense for Cisco to limit its involvement with NeoPath to a strategic investment. Because it resells NAS filers from its partner EMC, Cisco has access to Rainfinity technology. Analyst Steve Berg of Punk Ziegle & Co. says Cisco's only reason to invest would be to own the technology."It sounds like Cisco does want to buy them, but NeoPath is resisting," Berg explains. "Why would Cisco invest in Neopath if they didn't want to buy them, particularly if they can get the technology somewhere else? NeoPath can't come out and say 'Cisco's eventually going to buy us, because that scares off everybody else.'"

The storage analyst isn't so sure that Cisco won't be happy with an investment now. "It's a way of keeping their fingers in that space, to keep an eye on what's going on without having to move too soon," he says.

— Dave Raffo, Senior Editor, Byte and Switch

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