In a rare vote of confidence from 2001’s stingy venture capital community, a syndicate of nearly 20 strategic and institutional investors pumped $100 million into storage networking play 3PARdata Inc. What’s more, the Fremont, Calif.-based company managed to score a $300 million post-money valuation.
Originally slated to close at just $50 million, the all-equity Series C transaction quickly became oversubscribed after 3PARdata’s strategic backers signed on.
“We weren’t going to raise more money for another 12 to 18 months,” said David Scott, 3PARdata’s president and chief executive, who recently joined the company’s management team after 17 years at Hewlett-Packard Co. “Since we had no idea what [the market] might be like next year, we took the steps to raise the full $100 million. It really allows us to become self-sustaining once the business reaches cash flow break even without having to be hostage to the IPO market at that time.”
That isn’t to say that Scott doesn’t have dreams of an eventual Wall Street coming-out party, although it is contingent on the public markets bouncing back from their dismal slump. For now, this latest capital infusion is expected to be the company’s last, as it will likely tide 3PARdata over for the next three years.
Newcomer Amerindo Investment Advisors led the transaction alongside 3PARdata’s original investors, Mayfield Fund and Worldview Technology Partners, the latter of which has put approximately $20 million into the deal. Also representing the financial side were Anshutz Investment, Aurora Technology Fund, Dain Rauscher Wessels, iGlobe Partners Fund, Merrill Lynch, Mitsubishi Capital Financial Services, Mitsubishi International, Thomas Weisel Partners and Van Wagoner Capital Management.
More strategic participation came from Sun Microsystems Inc., Veritas Software Corp., Oracle Corp., Net One Systems Co. Ltd., Nissho Electronics Corp. and Intec IT Capital.
“You can’t find too many companies right now that can raise this amount of money unless they’re going after a large market with a product almost ready to go,” said James Wei, a general partner with Worldview Technology Partners.
“In times like this you look for very large markets to justify a large round. If you think back a few years ago, everything got funded. Companies chasing a $100 million market were getting the same valuations as those chasing billion-dollar markets. I think this year you’re going to see companies chase big ideas who have shown the technology they bring to bear is difficult to develop and is enough of a quantum leap to give credence that they can tackle a big, multi-billion-dollar opportunity.”
3PARdata seems to be one of those companies. The firm is slated to release its first product early next year, whereas most of its competitors won’t have a viable offering to bring to market until at least the end of 2002, Wei added.
While the storage space has become very crowded over the past six to nine months, 3PARdata has differentiated itself by offering what Scott deemed a “next-generation” storage array that enables large enterprises and network vendors to consolidate their information and perform better business intelligence.
“3Pardata is a new genre of storage company trying to build a utopian storage platform,” said Steve Duplessie, a founder and senior analyst with storage research firm Enterprise Storage Group Inc. “3Par and other storage wannabees are creating the universal storage platform – an array-based technology with theoretically infinite scale, and one that speaks whatever it is spoken to – either blocks or files. The problem they solve is really a management one – users can’t continue to deal with managing tons of systems.”
For example, a large enterprise may have many lines of business with fragmented storage devices. What 3PARdata does is allows them to centralize all of that information and own storage equipment that can become an internal service provider for all of those different businesses.
Moreover, network, content and information service providers like MCI Worldcom Inc. and Axiom Technologies International LLC that cater to many external customers can set up 3PARdata’s storage equipment so they can all share the same data in a secure and efficient manner.
“Asset utilization is something a lot of these providers are struggling with today,” Scott explained. “Dedicating one storage array to one customer is kind of like giving one electricity generator to one customer. It’s not very efficient.”
While 3PARdata is not alone in its target space it counts Edmonton, Canada-based Yotta Yotta and Marlborough, Mass.-based Cereva Networks Inc. as competitors the backing of IT giants like Sun and Oracle could help put it ahead of the pack.
“If you’re a storage company, customers are concerned with how you’ll integrate with their server vendor, data or software manager of choice,” Scott said. “You’re perceived as very high risk if their vendors aren’t backing you. [Our strategic] partners being there to help us integrate is one way we can substantially increase potential customers’ confidence in a complete solution from 3PARdata.”
To that end, proceeds from this latest round will be used to continue developing 3PARdata’s storage equipment offering, and putting in place its customer service and manufacturing infrastructure. 3PARdata plans to gradually add to its payroll, currently at 115, as its operations expand.
Founded in 1999, 3PARdata was last in the private equity market in May 2000, when it received $16 million in venture financing at a post-money valuation of $75 million.
Contact Robyn Kurdek: Robyn.Kurdek@tfn.com