VC Funding in Store for Storage

For venture investors, storage is an investment sector brimming with promising technology. Witness EqualLogic, a provider of self-managed storage networks that closed on $20 million in Series C funding. The deal is expected to be announced today.

EqualLogic raised $20 million in about five weeks. The Nashua, N.H.-based company initially set out to raise between $10 million and $15 million.

New investor Focus Ventures led the round and invested the largest portion. Previous investors Charles River Ventures, Sigma Partners and TD Capital Technology Ventures invested on a pro-rata basis.

EqualLogic has raised $52 million in capital to date. The company has not disclosed its valuation, but did confirm that the Series C had a post-money valuation up to two and half times that of the $15 million in venture funding the company raised last year. in a Series B round.

The company will use the funding for its sales and marketing efforts. EqualLogic has about 90 employees and will likely have 115 by early 2005. It plans to hire most of its new staff in sales and marketing and is considering opening new facilities in Asia and Europe, where the company hopes to expand internationally.

President and CEO Jack Boyle says that consolidation and compliance issues are going to drive the storage market over the coming years. He says that both large and medium-sized businesses are demanding the kind of self-managing technology that EqualLogic provides.

“Managing storage was something that the big computer companies scoffed at and charged a lot of money for,” says company John Joseph, who says that the iSCI-based technology that EqualLogic uses will continue to attract venture funding and corporate spending. “Anything with iSCI tagged on it is hot property right now.”

George Bischof, a general partner with Focus Ventures who will be an observer on EqualLogic’s board of directors, says his firm has been looking to invest in the storage area for a while, but so far has only submitted one other term sheet for a storage company. That company was Spinakker Networks, which ended up not bringing Focus on as an investor. Network Appliance acquired Spinakker earlier this year for $300 million.

Other recent storage deals include ARIO Data Networks, which this month raised a $17 million Series D round, led by Mellon Ventures. ARIO provides next-generation OEM building blocks for storage. Recently Yosemite Technologies received a $10 million Series B round of funding led by Trinity Ventures and that included Hummer Winblad and Altos Ventures. Yosemite provides data protection, which some consider the largest segment of the overall storage software market.

Venture capital investors put more than $3.5 billion into storage companies in 2003 and have put more than $650 million into storage deals so far this year, according to Thomson Venture Economics (publisher of PE Week). The storage space brought in $1.28 billion from venture investors in 2002.