Sanera Gets $38.3M - Just in Time

The public markets may be getting whipped on a daily basis, but that doesnt seem to be worrying venture capitalists who are still funding storage networking startups by the bucketload (see DataDirect Networks Gets $9.9M, Panasas Snags $25.4M, and Pirus Attains $9.5 Million Additional Funding).

The latest to cash in is multiprotocol terabit SAN switch maker Sanera Systems Inc., which just scored a $38.3 million second round (see Sanera Lands $38.3M ).

Analysts say the reason for the VC enthusiasm is simple. The SAN market is large, robust, and growing and will be one of the first to bounce back when the economy recovers.

"Businesses are desperate to lower their operational expenses, which means deploying scaleable storage networks, not a hodge-podge of switches that don’t scale," says Alex Mendez, newly appointed interim CEO at Sanera and a founding partner of Storm Ventures, an early investor in Sanera.

”We secured our funding one day before Armageddon day,” he says. “The world came to a stop on September 11 and is gradually recovering, but most of the startups you see getting funded today will have secured these deals a while ago.”Mendez isn’t so enthused about those looking to raise funds post meltdown. “Money is everything today. It is the single biggest competitive advantage a company can have – and many good companies that can’t raise financing now are going to fail in the next 12 months, and there is going to be a massive washout in the private sector." He predicts that as a many as 75 percent of the startups in this field will fail.

”We have taken the financing risk out of the equation and can now concentrate on building our product,” he says. Sanera is funded through 2003 and expects to launch its first switch mid-2002. It has approximately a hundred employees (see Sanera Guns for Brocade).

Sanera raised the financing from Enterprise Partners Venture Capital and Greylock Ventures, which led the round. Current investors Storm Ventures, CMEA, and E*Trade also participated in the round. This brings the total venture funding raised by Sanera to $55.8 million. Bill Stensrud of Enterprise Partners Venture Capital and Charles Chi of Greylock Ventures will join the startup’s board of directors.

Analysts say Sanera's in a good space, but they seem reserved as to whether the funding boom can continue. “What’s fueling the SAN market is the compelling cost and performance advantages centralization and sharing create,” says Robert Gray, research director for IDC's storage research group. “However, SANs are not easy to deploy, and the various competing transport protocols are confusing the market. Products like Sanera’s promise a simplification of interoperability issues.”

According to IDC, the SAN switching market is expected to grow from $1.3 billion in 2000 to $5.6 billion in 2004. How much of this market Sanera is able to grab will depend on product execution and winning customers against incumbent goliaths like Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDT).Money certainly helps, as Mendez notes. But it isn’t everything.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com