Incipient Looks to Deal

Virtualization software startup seeks OEMs or suitors

May 12, 2004

4 Min Read
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Incipient Inc. has a new board chairman who is expected to help the company find the big OEM deals it needs to go to the next level, according to company sources. But some in the industry wonder if the Waltham, Mass., startup is trying to make itself a more attractive acquisition target.

The new chairman is Peter Levine, managing director at Mayfield venture firm and no stranger to storage company boards. Levine is CEO of Mendocino Software

and sits on on the board of Actona Technologies Inc. and OuterBay Technologies Inc. (see Mendocino Scores $15M and Actona Attracts Additional $10M). Levine is also a former Veritas Software Corp. (Nasdaq: VRTS) executive, and Incipient honchos say he has the industry contacts to help secure OEM deals for their software to virtualize intelligent switches.

"Peters wealth of knowledge and industry experience will help guide Incipient as we take our products to market and secure additional distribution partnerships with storage industry leaders,” Incipient CEO Ric Calvillo said in a statement.

One insider says Incipient is closing in on an OEM deal with a major storage company. Others say the startup is caught in a time crunch and needs to be sold to survive. While Incipient’s technology is well thought of, and the intelligent SAN switch market is expected to take off eventually, it probably won’t start to trickle revenue until the end of this year at the earliest (see Report: Switch Is Best for Virtualization).

“I would imagine their only strategy is to be bought by somebody,” said an executive of a hardware company that has done testing with Incipient’s software. “They have to be bought -- it’s hard to build a company doing what they’re doing.”“They have a nice product,” a storage consultant adds, "but it’s tied to the intelligent switch market, and intelligent switches aren’t shipping."

When they do ship, there will be heavy competition for the startup. EMC Corp. (NYSE: EMC), IBM Corp. (NYSE: IBM), and Veritas are all developing virtualization software for the major switch vendors.

Talk of a sale is nothing new for Incipient. It has been going on for more than two years already (see Incipient Is Latent). Even Incipient people don’t rule it out. “The goal for Ric is to continue to develop the business,” says company spokesman Robert Infantino. “If there is a suitor along the way, we’ll be open to all options. But our focus is on developing and delivering our product.”

Who might be a suitor? EMC and Incipient have a history, as Calvillo sold Conley Corp. to EMC in 1998 and stayed on to run EMC’s software center before starting Incipient in 2001. Rich Krueger, Incipient’s VP of business development, also worked at Conley and EMC. Infantino, who says he is “helping out on marketing” for Incipient, was founder of Astrum, the storage resource management startup that EMC picked up last year after its venture capitalists pulled the plug (see EMC Sucks Up Astrum).

But the time for EMC to buy Incipient has likely passed. One source says EMC came close to buying Incipient once before, but the relationship soured. A financial analyst says Incipient has “a love-hate relationship with EMC” that seems to be in the hate stage now.Incipient has ties to other storage companies as well. It has worked closely with switch vendors Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) through McData’s partnership with Aarohi Inc. (see Incipient Demos Fabric-Based Storage, Brocade Intros Multiprotocol Services, Incipient and Brocade Plan Demo, and Aarohi Intros Smart Storage Chips).

Incipient has raised $35 million in funding through investors HLM Venture Partners, Essex Investment Management Co. LLC, Greylock, Globespan Capital Partners, and Sigma Partners. Its last funding was a $10 million haul in September, which completed a $25 million second round (see Incipient Ropes In Another $10M).

Infantino says the company is concentrating on getting into position for when a market develops for its product.

“There are things you can control, and things you can’t control,” he says. “We’re on target with the things we can control. Now we’re waiting for deliverables from the switch vendors. We can’t control that.”

— Dave Raffo, Senior Editor, Byte and Switch0

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