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Nutanix raises $140 million, claims $2 billion valuation

Nutanix Inc. bolstered its status as one of the hottest converged infrastructure companies with today’s announcement of a $140 million funding round – its largest to date – and a valuation claim of more than $2 billion.

The Series E infusion boosted the San Jose, California-based startup’s total to $312 million since its initial Series A funding round of $13.3 million in July 2010. Nutanix claimed investors valued the company at about $1 billion in January with the closing of its $101 million Series D financing. The value nearly doubled with the latest funding round, which was led by Boston-based Fidelity and Wellington, according to a source familiar with the financing.

Nutanix CEO Dheeraj Pandey blogged that the nearly five-year-old company “raised an IPO-like amount, at an IPO-like valuation, in a private round with institutional investors who typically buy at IPO time” but elected not to go public – yet.

“When you’re a public company, sometimes you have a lot of near-term pressures to deliver a certain number for a quarter, and everything gets scrutinized much more, including all the investment decisions that the company makes,” said Howard Ting, senior vice president of marketing at Nutanix.

Ting said making investments as a private company will allow the team to prepare a “really special” initial public offering (IPO), which he said “is not that far off,” probably in the next calendar year.

“We could decide to push that off,” said Ting. “With this funding, we actually have a lot of flexibility.”

Nutanix plans to use the latest round of funding to invest in sales, research and development, customer support and marketing of its software-driven converged infrastructure products, which are often referred to as “hyper-converged” for their tight integration of virtualization, compute and storage resources in a single box.

Ting said the Series E funding process was in the works for months, and when the closing happened on Tuesday, it made sense to make the announcement today in connection with the biggest conference in the virtualization and data center industry, VMworld.

VMware made a big splash at the conference on Monday with the launch of EVO:RAIL, which combines its compute, networking and storage resources into a hyper-converged infrastructure appliance. Hardware partners that have signed on to build the appliances – which will include VMware’s Virtual SAN (VSAN), vSphere and vCenter Log Insight – include Dell, EMC, Fujitsu, and Super Micro. None expect to ship products until close to year’s end.

The fourth quarter also happens to be the time frame when the XC Web-scale Converged Appliance, which combines Nutanix software and Dell hardware, is expected to become generally available. Nutanix announced the OEM agreement with Dell in June.

“You’re seeing a situation where especially these bigger companies are cooperating and competing with each other and going to market in ways that could be viewed as direct or at least indirect competitors. I think it’s just a natural evolution of the market,” said Jayson Noland, a managing director at Robert W. Baird & Co. Inc.

A Baird Equity Research report released last Friday listed Nutanix as the market leader in the hyper-converged market, with approximately 50% share, and VSAN as the most notable competitor given VMware’s market reach.

“There’s a lot of changes going on, and there’s going to be some large legacy IT companies that make this transition, and there’s going to be others that don’t. There are going to be small and new and shiny companies that never make it out of the gate, and there are going to be others that are wildly disruptive,” said Noland. “With a valuation like [$2 billion] and a $140 million capital raise, I would say investors are betting that Nutanix is going to be one of the big winners.”

Nutanix claims to have more than 800 customers, including 29 that have purchased more than $1 million in aggregate products and services. The list includes Airbus, Honda, ConocoPhillips, Toyota and the U.S. Navy.

Arun Chandrasekaran, a research director at Gartner Inc., said the new funding round and overall invested capital will help Nutanix to dispel some of the end-user concerns on vendor viability. He added that he expects more rapid global expansion on the heels of the funding and the OEM deal with Dell.

Pandey claimed his company’s ambition “is much bigger than what you know and see of this company today, hastily classified by so-called experts as a hyper-converged hardware vendor. We surprised those industry pundits by doing the Dell OEM deal, and all the ‘software-defined’ hypocrites were left scratching their heads on how to respond.”

The Nutanix CEO noted the increasingly heated competition in the market space, claiming in his blog post that the company is at war. “And to deal with the shenanigans of big companies, we don’t just need the technology muscle, but also some world-class sales, marketing, distribution, and packaging muscle,” Pandey wrote.

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