Storage lessons learned from the dot-com era

June 18, 2010 -- We're 10 years removed from the dot-com era and the storage landscape barely resembles that of a decade ago. At this week's BD Event here in Boston, Peter Bell, a General Partner at Highland Capital Partners, gave advice to storage startups and recounted some of the lessons learned from his time at the helm of StorageNetworks, the first–and–last of the true storage service providers (SSPs).

Bell was the co-founder, Chairman and CEO of StorageNetworks, were he guided the SSP from concept to a huge IPO in June of 2000, raising more than $700 million in funding along the way.

But, in 2003, the way-before-its-time SSP model (can you say cloud?) failed. StorageNetworks closed its doors and its competitors shifted to a software model or vanished into the ether (from the way-back machine, see: "The last–and first–SSP calls it quits").

In his current role, he represents Highland on the boards of Desktone, ExaGrid Systems, Gigamon, InXpo, Ocarina Networks, SCVNGR, Virtual Computer, VMTurbo, and is actively involved with a number of Highland's other investments.

Bell said the funding for storage startups just is not the same today.

"No startup is immune to what's going on in the market. The venture capital dollars going into software and networking startups in 2000 were about $35 billion. In 2009 they were $4 billion," he said. "The lessons learned from StorageNetworks are still relevant today. We raised $700 million in 21 months, but I don't think you can do that today."

Taking a startup public is a much longer process these days. Bell said it takes about 10 years, double the average length of time it took to go public during the dot-com boom. "It takes a lot longer and [a startup] needs to be bigger and raise more capital to reach an IPO."

Bell bets there are storage vendors out there that have filed S1s, but are waiting for the economic climate to improve before they take the plunge. There is an added bonus for the lucky few who reach an IPO. Bell said valuations are higher to the tune of about 25%.

Most startups, he said, look to acquisition as the most likely path to growth/exit strategy.

It's not all doom and gloom. Bell is still bullish on the storage market. "In 2008, it was virtually impossible for a tech startup. 2010 has been a little better, but it's still tough," he said. "But people are addicted to storage and it's legal. There aren't that many businesses out there like that."

Bell points to companies who have been acquired or are experiencing growth like Acopia, Compellent, Diligent, Data Domain, EqualLogic, Isilon, Onaro, and XIV, as recent "winners" in the storage market.

Storage startups looking for an angle should consider a few hot technologies as their foot in the door. Bell believes solid-state storage, automated tiering, open-source storage, video storage and, of course, cloud storage/virtualization, are the next big things.

Bell emphasized the importance of the management team and business model as the keys to raising venture capital.

"It's the company you keep. Pick your partners and executives very, very carefully. The business model is as important as your team, but it's often not given enough thought," said Bell. "Long, unpredictable sales cycles lead to very short CEO tenures."

Related articles:
F5 to buy Acopia for file virtualization
Compellent adds ZFS-based NAS
IBM acquires Diligent for de-duplication
NetApp bows out, EMC to acquire Data Domain
Dell to acquire EqualLogic for $1.4 billion
Isilon adds enterprise features to scale-out NAS
NetApp expands SAN strategy with Onaro acquisition
IBM buys XIV for fixed digital content