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Storage startup survey: Funding tops $1.2bn in 2013

IPOs are in the air and storage startups are magnets for investors, with $1.2bn of funding flung at flash arrays, hybrid flash, converged storage, cloud and object storage

Last year was another strong one for storage startups, with publicly disclosed funding of a shade under $1.2bn going their way.

That amount of cash backing and a flurry of initial public offerings (IPOs) for storage specialists reinforces our view that enterprise storage is a healthy space for innovation, in spite of, or perhaps because of, the ongoing squeeze on enterprise storage budgets.

The startup ecosystem remains the engine of innovation for enterprise storage and the reasons for that are relatively straightforward.

There is huge pressure on making enterprise storage infrastructure much more efficient than it currently is, and this opens the door for a wide range of innovations that entrepreneurs believe can disrupt the market.

It is true the vast majority of enterprise spending on storage infrastructure is concentrated on a handful of very large suppliers, but the big paydays resulting from acquisition, IPO, etc, commanded by some startups make storage a potential goldmine for shrewd investors.

Storage investment trends in 2013

Funding for the storage startups Computer Weekly followed in 2013 – plus a few that are still in stealth but have revealed investment details – fell just shy of $1.2bn. This compares with just over $1bn in 2012 and just under $1bn in 2011.

Of course, this only provides a partial snapshot of the storage startup ecosystem. There are a good number of companies that did not raise money in 2013, but which are already well funded or could be looking to raise money in 2014.

Innovation in storage does not come solely from startups. Large storage suppliers continue to make R&D investments to develop new products and capabilities. Seagate’s recent Kinetic initiative is a good example. 

Storage innovation is also being driven by other types of company, such as those in hyperscale environments, including the likes of Amazon, Facebook and Google.

Storage startup hotspots: all-flash and hybrid flash

There are clearly a few significant hotspots for investors, the most obvious being the all-flash array space. This category led the funding charge in 2013 as investors lined up to put money into startups with all-flash and flash-optimised architectures.

The standout investment was the $150m Series E funding achieved by flash array maker Pure Storage, though several other flash array suppliers secured funding in 2013, including SolidFire and Skyera.

Also, companies that offer a range of hybrid flash and all-flash capabilities – including Tegile and Nexenta – also raised growth-stage money in 2013, as did VDI storage specialists Greenbytes and Atlantis Computing.

New entrants and hyper-convergence

New entrants to the storage space included Coho Data, which is believed to be the first company to apply software-defined networking (SDN) technology to the scale-out storage arena. CloudByte also launched, with its take on ZFS-based storage for cloud service providers.

Another apparently hot area is so-called hyper convergence, with specialist Simplivity raising growth-stage capital in 2013. The interest in convergence looks set to continue this year, as Nutanix – arguably the pioneer of the hyper-converged appliance – announced $101m in Series D funding in January 2014 and announcing it had generated more than $100m in revenues since shipping its first product less than two years ago.

Storage startup IPOs – and some highs and lows

The extent of the opportunity in the storage systems space – and hence the attraction for investors – was highlighted by the hugely successful story of Nimble Storage. The company roared past the $100m revenue run-rate in 2013 after selling its hybrid storage systems for only a couple of years, and in December 2013 made its public debut. After seeing its stock price soar on the first day of trading, the company currently enjoys a market capitalisation in the region of $2.7bn.

At the opposite end of the spectrum, we also saw flash array market pioneer Violin Memory make its debut as a publicly traded company in September 2013, an event that triggered what can only be described as a crisis at the company. CEO Don Basile was dismissed following poor quarterly results and, in stark contrast to Nimble, Violin’s market cap currently stands at around $320m, roughly a third of its initial valuation.

That company’s experience will serve as a wake-up call for the other startups in this space; 2014 will be a make-or-break year for many flash array makers and storage systems players generally.

While some players, especially SolidFire and Pure Storage, seem to be gaining real market momentum, it is still early days and competition will intensify as the major suppliers step up their own flash efforts. This year could well see a shake-out of startups and specialists that are not up to the mark.

PCIe flash and caching software

There was money in 2013 for startups targeting server-based flash storage. Solid-state media is very appealing here, especially for low-latency applications, but adoption is still mostly restricted to niche applications.

Looking to change that are caching software startups such as Pernix and Proximal Data, both of which emerged in 2013 with products designed to cluster host-based Flash across multiple physical servers.

There was also money for Diablo Technologies, whose unusual approach involves implementing flash into server DIMM slots – so-called memory channel storage – to create a super-low latency and large solid-state storage pool on the host.

Name Focus 2013 funding ($m) Total funding ($m)
Actifio Data management/protection 50 107.5
Atlantis Computing Storage for VDI 20 35
Axcient Hybrid cloud backup 20 53.5
Bitcasa Cloud storage 11 20
Box Cloud storage/collaboration 125 413
Cleversafe Object storage system 55 115
Coho Data Hybrid array with SDN 25 35
CloudByte ZFS-based storage software 4 6.1
DataGravity Stealth 30 42
Datto Online backup 25 25
Diablo DRAM/flash storage 7.5 36
Druva Online/laptop backup 25 42
Egnyte Online file storage, syc/share 29.5 62
GreenBytes Storage for VDI 7 27
GridStore Scale-out storage system for Hyper-V 11 26
Hedvig Stealth 10 12.5
Hightail (FKA YouSendIt) Online file storage, sync/share 34 83+
Infinio NAS acceleration 22 24
Inktank Commercial support/dev for Ceph 13.4 14.4
Maxta Hyper-converged storage software 10 10
Nexenta ZFS-based storage software 62 84
Panzura Cloud storage gateway 25 58
Pernix Data Flash-based caching software 20 27
Pivot3 Storage for VDI, video 14 100+
PhD Virtual Technologies (acquired by Unitrends) Backup software 4 n/a
Proximal Data Flash-based caching software 2 5
Primary Data In stealth 50 50+
Pure Storage All-flash array 150 245
Quorum Business continuity 21 39
Reduxio In stealth – hybrid flash arrays 9 9
SageCloud ZFS-based “cold-storage” 10 13.2
Scality Object storage software 22 35
SimpliVity Converged Infrastructure 58 101
Skyera All-flash arrays 45 51.6
SolidFire All-flash arrays 31 68
Spanning Cloud Apps Backup for SaaS/Google Apps 6 9
SwiftStack Commercial support/dev for OpenStack SWIFT 6.1 7.6
Symform Online/cloud backup 3 20
Tegile Hybrid storage array 35 47.5
Violin Memory All-flash arrays 16 254
Virident Systems (acquired by Western Digital) PCIe flash cards 40 115
Zadara Storage Primary cloud storage 3 10
Zerto Replication software 13 34
Zetta Cloud storage 8 39.5
Total   1.1975bn  

Object storage startups attract cash

Also notable in 2013 was a resurgence of investment in object storage specialists.

This market remains a niche, but is attracting interest as more organisations assess new approaches to storing massive volumes of unstructured data. In 2013, Cleversafe – one of the object storage pioneers – raised a substantial $55m, while there was also money for Scality and those looking to make money from open source object storage platforms, including Inktank and SwiftStack.

While we don’t expect 2014 to be a break-out year for object storage, we do expect to see more signs of progress, especially as interest in cloud software stacks such as OpenStack continues to build among service providers and enterprises.

The storage cloud continues to grow

The cloud storage market was a fascinating space in 2013.

The undoubted low point was the sudden, high-profile collapse of Nirvanix. However, that failure does not seem to have shaken confidence in the cloud storage model. Indeed, we think Nirvanix’s failure was mostly self-inflicted, as discussed here.

But 2013 saw additional funding for cloud gateway specialist Panzura, as well as erstwhile Nirvanix rivals Zetta and Bitcasa and primary cloud storage specialist Zadara.

Meanwhile, Box drew in another large funding round as it sought to redefine the way professionals collaborate and share content in the cloud, while rivals Egnyte and Hightail also added to their coffers.

Backup and disaster recovery continues to be a major use case for the cloud storage model. In 2013, there was continued healthy interest and investment in this sector, particularly for specialists offering hybrid cloud backup; on-site disk plus cloud.

This is proving a popular model for smaller organisations, as well as larger firms with multiple remote offices. In 2013, there was funding for Axcient and Datto, while others in the backup/DR space to get funding in 2013 included Symform, Quorum, Druva and Spanning.

Turning to on-site protection, the undoubted startup-darling of the data protection space – although it actually bills itself as more of a wide-ranging data management platform – is Actifio.

The company raised another $50m in 2013, and claims to be making strong progress among mid-to-large enterprises, already a fiercely competitive part of the market where large incumbents have been well established. We’d expect to see an evolving story from Actifio in 2014 as it plans to tackle what it terms “copy data management”.

More IPOs expected in 2014

With the IPO window for tech firms open – at least for the time being – we expect Actifio to be among those looking to go public this year. We might see one or many all-flash and hybrid flash array specialists file for IPO this year, though Nutanix’s huge January raise makes a near-term IPO less likely in our view.

Meanwhile, the storage startup pipeline is reasonably healthy. Though the total number of new storage startups seems to be declining, there are still plenty of companies in stealth that could reveal themselves this year, including Maxta, DataGravity, Hedvig and Primary Data, which all raised money in 2013. When they do emerge they will join what continues to be a fast-moving and fascinating storage landscape.

Simon Robinson is vice-president, storage, at 451 Research.

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