ANALYSIS: Storage Start-Ups in 2011

In 2011, we counted 55 investment rounds initiated by storage start-ups
against 61 in 2010 and 51 in 2009, a stable figure but far from the record of 76 in
2004 and 2005. But this small decrease last year is not bad news for storage,
still one of the most dynamic sectors in the IT industry, remaining appreciated by VCs that dream of what some of them got following
the acquisitions of firms like 3par and Isilon in 2010 at huge prices.

But these later investors were lucky as generally most of them have to invest in several start-ups to finally win the jackpot.

NUMBER OF FINANCIAL ROUNDS
SINCE 2003

(Source: StorageNewsLetter.com)

Fewer New Start-Ups Since Five Years
More worrying is the increasingly reduced number of start-ups founded
since the heydeys of 2000 when 95 new entities sprang up in a single
year. We were only able to turn up 12 new firms launched last year vs. 19 in 2010 while this figures may go up as more of these, operating in stealth mode,
come to light.

NUMBER OF STORAGE START-UPS
LAUNCHED EACH YEAR SINCE 1996

(Source: StorageNewsLetter.com)

NEW START-UPS (known thus far) BORN IN 2010 …

 (Source: StorageNewsLetter.com)

 
… BORN IN 2011

 (Source: StorageNewsLetter.com)

How Much Do They Raise?
16 firms raised more than $20 million in 2011 (9 in 2010 and 2 in 2009)
with a huge $250
million for Dropbox and $129 million for Box.net, both historical
records in the storage industry, the former one being $97 million in
2005 by Cornice. The largest round was only $45 million in 2010, for
Fusion-io. The storage cloud was really exciting the investors last year
and this trend will continue, as well as investments into SSDs with
several rounds around solid-state technology start-ups last year.

LARGEST FINANCIAL ROUNDS IN 2011
At more than $20 million
(in US$ millions)

* in two rounds in 2011
(Source: StorageNewsLetter.com)

If we take into account here the total funding of start-ups, all rounds
aggregated, Pillar Data was the most financed company, with $544 million
from Larry Ellison, CEO of Oracle that finally acquires the storage
subsystem provider. After that comes Dropbox with $257 million and
BlueArc (acquired by HDS) with $224 million.

Record Year in Financial Funding
2011 was a record since 2003 in the amount received by storage start-ups considering here only the sums revealed by the companies: $1.147 billion invested or an average of $20.8 million per round (when a firm got two rounds the same year, we consider them as one round), a figure increasing by 66% compared to 2010. The former record was $985 million for the total invested in 2005 and $13.4 million per round in 2008. These past nine years, VCs have put $14.3 billion in storage start-ups. This amount is twice the total figure in the table below ($7.290 billion adding all rounds) because, for several firms, we got the total invested but not the details per round. On average, a start-up get $38 million in total funding, average of each round being $13.2 million.

* US $million
(Source: StorageNewsLetter.com)

Just One IPO Since 2008
In 2007, the main event was the long-awaited return of the U.S. stock
market’s interest in storage start-ups with six IPOs registered. That
did not last long, however. Then there was one operation of this sort
posted in 2008, no one in 2009 and just one in 2010. Finally 2011 proves that there a new interest of Wall Street for storage, with four IPOs during the year: Carbonite in Internet-based backup service, Fusion-io in PCI SSDs, Malaysia’s JCY International in HDD mechanical components, and Parade Technologies in HDMI, DisplayPort and SATA display, storage and interface ICs.

IPOs IN THE STORAGE INDUSTRY

* in US$ million
** became public via a merger with Network Peripherals
(Source: StorageNewsLetter.com)

We could possibly envision a few companies who might risk a public
offeringin 2012, with names that come to mind like DataDirect Networks or once
more GlassHouse and Nexsan. Hitachi GST tried to be public before the announcement if its acquisition by WD.

For storage start-ups, there are finally very small chances for a successful IPO. The real possibility for the founders and investors is more to find a
big buyer.

Where From?
It will come as a surprise to no one that storage start-ups are for the
most part (around three-fourths of the total) headquartered in the
U.S., even if occasionally the actual founders hail from another country
originally (typically Israel). Far behind are France, UK, Canada and Israel. Apart America and Europe, the
two other continents, Asia and Oceania, are not well represented at
all.

WHICH COUNTRIES DO THEY COME FROM?
(out of 362 active start-ups)

(Source: StorageNewsLetter.com)

Where Are They Going?
The last thing we looked at was what becomes of all these storage
start-ups after we identify and count them? The conclusion is not really
reassuring, a reminder that investment in these sorts of companies is
in fact highly risky. And that’s just taking those we know about.

On all start-ups identified, only 3% eventually go public, and thus allow investors more than just to
recoup their original stake. The same is generally true for the 27%
that find buyers, although the asking price is not always greater than
the total of all sunk investments. It is, in any case, the emergency
exit that most companies are seeking, certainly more than the
increasingly elusive IPO. Meanwhile, another 18% just vanish off the map
– doors closed.

More than half (51%) remain in a holding pattern, still a start-up,
still nursing the secret hope of an offer from a storage giant seeking
to fill-in a missing technology.

WHAT HAPPENED TO THEM SINCE 1978
(out of a total 688 start-ups)

Note: Total is more than 688 become some of them became public and/or were closed and and/or were sold.
(Source: StorageNewsLetter.com)

22 of them did find buyers in 2010 and 18 in 2011, the biggest deals last year being Pillar Data by Oracle, Anobit by Apple, SandForce by LSI and Pliant by SanDisk. 5 of the 22 acquired start-ups are involved in SSDs.

START-UPs ACQUIRED IN 2011
(price in US$ millions)     

(Source: StorageNewsLetter.com)

                                        FINANCIAL FUNDINGS IN 2011 
…

 
(Source: StorageNewsLetter.com)

                                       … FINANCIAL FUNDINGS IN 2012


(Source: StorageNewsLetter.com)