VC: Storage Startups Need Help

The storage market has entered a new phase and IT customers are ready to spend, but they're tougher than ever on startups. Without a solid understanding of what's needed -- and partnerships with big storage vendors -- new companies will miss the opportunities available.

So says Peter Bell, a storage industry veteran and the latest team member to join VC firm Highland Capital Partners. He says IT pros have costs and capacity under control, and they're looking for solutions that help them leverage information, not just store it.

"Customers want to know, 'What can I do to make my business more productive?' Startups need to really understand the challenges of the enterprise," says Bell.

As part of Highland Capital's team, Bell has access to the firm's latest fund, totaling $800 million, but he's focused more on quality than quantity, and he says the firm doesn't have a specific goal regarding the number of storage plays in its portfolio. Right now, the firm has Exagrid Systems, HighGround Software, and Virtual Iron Software on that list.

"It's hard to break into the data centers unless you have a really strong understanding of the enterprise and can partner with leading companies," he maintains. "Storage prices keep going down, and capacity levels are under control. It's not about the storage device, but the information that sits on it. I want to find the entrepreneurs that have industry focus and application knowledge."According to Bell, a frequent mistake of new companies is to try and solve 80 percent of a large data center requirement, when they could solve 100 percent of two smaller, more focused problems. "A horizontal solution that fits everywhere but doesnt solve one problem is hard to sell," he says.

Bell sees a chance for innovation in areas like searching and indexing of data, where there's a call for application-specific solutions: "The compliance issues you might deal with if you were running a hospital are very different than if you’re running a hedge fund."

Bell believes startups shouldn't be deterred by the likes of Google, which is also innovating in this area. (See Google One-Ups Intranet Search.) "An early stage company that can really understand a specific customer segment, like hedge funds, hospitals, manufacturing, universities... Google may not be in that space yet. You have to think about Microsoft and the large system players, sure, and there are many search-type companies. It's a crowded space, but customers still have challenges."

But Bell says it's also useless for new firms to try and compete with the likes of EMC or NetApp, particularly when IT customers are looking to consolidate the number of vendors they deal with.

Startups also need to be mindful of how they can work with these large players. "Large vendors are doing well and customers trust them," he reckons. "But they're not resting on their laurels. They can be great partners for startups, but any startup has to have a value proposition for them. Startups need to ask, 'How can I help the partner as well as the customer?'"Bell himself started in sales at EMC in 1984. It wasn't until nearly ten years later, in 1993, that he got a sense of wider possibilities. That's when EMC bought Epic Systems, a company involved in hierarchical storage management, archiving, and backup.

"I got very interested in leveraging the information that sits in the storage system," Bell says. Working in sales and marketing at Epic headquarters in Westboro, a short distance from Hopkinton, got Bell involved in a new view of storage as not merely a way to store information, but to leverage it. He extended that view a few years later, when he became CEO of StorageNetworks, a storage service provider (SSP) that succumbed to market forces in 2003, and later still, as a VC with his own firm and as a teacher of tech entrepreneurship at MIT's Sloan School of Management (See StorageNetworks Succumbs.)

Figure 1: Peter Bell, Highland Capital Partners

Watch for more to come on the full interview with Bell in upcoming Byte and Switch coverage.

— Mary Jander, Site Editor, Byte and SwitchOrganizations mentioned in this article: