Storage Start-Ups in 2012

In 2012, we counted 67 investment rounds initiated by storage start-ups, a good number.

It was 62 in 2011 and 68 in 2010, a stable figure but far from the record of 76 and 77 in 2004 and 2005, respectively. This small increase last year is not bad news for storage, still one of the most dynamic sectors in the IT industry, continuing to be appreciated by VCs that dream of what some of them got following the acquisitions of firms like 3par, Data Domain and Isilon few years ago at more than $2 billion.

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

Already five new rounds have been registered in 2013.

NUMBER OF FINANCIAL ROUNDS
SINCE 2003

Fewer New Start-Ups
More worrying is the reduced number of start-ups founded since the heydeys of 2000 when 96 new entities sprang up in a single year. We were only able to turn up 11 new firms launched last year vs. 21 in 2011 and 34 in 2010, while these figures will go up as more of them, operating in stealth mode, come to light.

NUMBER OF STORAGE START-UPS
LAUNCHED EACH YEAR SINCE 1996

How Much Do They Raise?
27 firms raised more than $20 million in 2011 (16 in 2011 and 9 in 2010). Box.net tops the list with with $125 million. Last year the records were $250 million for Dropbox and $129 million for Box.net, both of them in cloud storage. Per comparison, the largest round was only $45 million in 2010, for Fusion-io. Cloud was really exciting the investors last year as well as SSD technology and this trend will continue.

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.

LARGEST FINANCIAL ROUNDS IN 2012
At more than $20 million

* in two rounds in 2012

Record Year in Financial Funding
2012 was another record year since 2003 in the global amount received by storage start-ups considering here only the sums revealed by the companies: $1.340 billion invested or an average of $20.0 million per round (when a firm got two rounds the same year, we consider them as one round), a figure increasing by 13% from 2011.

These past ten years, VCs have put $15.9 billion in storage start-ups. This amount is about twice the total figure in the table below ($8.854 billion adding all rounds) because, for several firms, we got the total invested but not the details per round.

On average, a company got $38.8 million in total funding, the average per round being $13.2 million.

* in $ million

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 India or 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 388 active start-ups)

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 28% 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 749 start-ups)

Note: Total is more than 749 become some of them became public and/or were closed and and/or were sold.

18 start-ups did find buyers in 2011 and 21 in 2012, the biggest deal last year being XtremIO for $430 million, this one and several others around SSDs.

START-UPS ACQUIRED IN 2012

*in $ million

NEW START-UPS (known thus far) BORN IN 2011 …

… BORN IN 2012

* Correction on February 14, 2013

ALL FINANCIAL ROUNDS IN 2012

* Correction on February 14, 2013