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Bears may tear up Wall Street but storage is still hot with VCs

While a number of established storage vendors have had their share of financial problems, VCs seem hot on start-ups.

Bears may tear up Wall Street but storage is still hot with VCs
By Alan Earls

While a fair number of established storage vendors have had their share of financial problems lately -- poor earnings, falling share prices, and the like -- for privately held companies still in startup, there has been plenty of deal money flowing.

According to the latest Money Tree Survey conducted by PriceWaterhouseCoopers, venture capitalists dropped some $214.7 million into the pockets of storage entrepreneurs in the first quarter of this year. Among the recipients of this largesse were Agile Storage ($14.2 million), Astrum Software ($5.3 million), Bocada ($4 million), Calimetrics ($25million), Confluence Networks ($15million),LeftHand Networks ($10million), Pirus Networks ($27million), and Xythos Software ($6.2 million)

And that's not all
Then there was SANrise of Dublin, Calif. -- a company that scored a whopping $108 million! This latest funding round brings the total amount of equity, debt, and lease facilities that has been issued, raised, and committed to $203 million since the company's inception in May of 2000. SANrise says the infusion of funds will accelerate the build-out of its global fiber optic data storage network infrastructure, expansion of its global operations, further offshore development initiatives, and continued growth of the company's professional services teams in North America, Europe and Asia.

"SANrise has created a flexible and scalable storage solution delivering the speed-to-market required by rapidly growing enterprises, both established and emerging," notes Seth Neiman, managing general partner of Crosspoint Venture Partners, the company's principal venture investor, which also provided SANrise funding in May 2000.

A sunny future
Nor is there evidence that venture investors are slacking off. Just last month, Gadzoox Networks Inc., a maker of Storage Area Network (SAN) products, announced that it had closed on the sale of $14.8 million of common stock in a transaction led by the Galleon Group, a prominent technology and healthcare fund with specific expertise in the SAN market. Galleon currently manages over $5 billion in equity funds. Gadzoox says the investment will be used to build upon the successful launch of Slingshot, the company's new 2 Gb open fabric switch and to support the development of future products and programs during this fiscal year.

"Funding of storage companies, though a more rigorous process in recent months, continues to move forward," says William Hurley, analyst at the Yankee Group. "The reason is that the storage explosion still shows few signs of abating. By all projections, data growth will only accelerate in the coming years."

Currently available systems are handling today's demands, primarily through the hard work of enterprise and service provider data managers, says Hurley. "The disruptive technologies on the horizon portend the integration of both block and file services on the same physical platform, the integration of LAN and WAN technologies directly into storage platforms, and the use of IP/Ethernet solutions," Hurley says. "Higher level functionality such as virtualization and distributed cache coherency will also impact the manner in which storage is deployed, both in enterprise and service-provider infrastructures."

Hurley adds that venture capitalists see the aforementioned "conspiracy" and balance that reality against the fact that it now costs $7-10 to manage every $1 of storage infrastructure.

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About the author: Alan Earls is a freelance writer in Franklin, MA.

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