The BDevent Gives Attendees a Billion Dollar Lesson
Not many individuals have ever had the opportunity to be worth $1 billion. Fewer still have had the opportunity to lose a billion dollars over the course of their lifetime. Then there are those privileged few that have both gained and lost that amount of money in just a few years. It was one of those individuals, Peter Bell, a general partner at Highland Capital, who spoke at the opening of this week's BDevent in Boston to share what he learned from that experience and how others can benefit from it.
For those of you unfamiliar with the BDevent, it is a semi-exclusive gathering of individuals that primarily focus on the data storage industry. Attendees consist of storage analysts, press and bloggers who cover the data storage space; emerging storage startups (Oxygen Cloud Storage), companies that fill niche roles in the storage industry (BridgeHead Software, dataStor, IceWEB, SEPATON) and business development managers from more well known storage providers (CA Technologies, HDS).
As is the tradition at these events, the BDevent begins with a keynote from someone who is in the "been that, done that" category of the storage industry and Bell certainly fits that description. He was one of the individuals who initially founded Storage Networks in the late 1990's when "cloud computing" was still "utility computing", saw the value of his company's stock soar to over $9 billion and then rode it to its depths during the dot.com crash.
Bell's trek from being a "multi-thousandaire" to a multi-billionaire back to a "multi-thousandaire" (or whatever Bell became) in a relative short period of time gives him a rather unique perspective on investing. This now heavily influences him in his current role as a venture capitalist in terms of how the availability of VC funds has changed in the last decade as well as what storage startups should expect going forward.
First, the availability of venture capital funds to invest in storage startups has dramatically changed in the last decade. According to Bell, in 2000 the amount of money available for investment in venture capital spiked at around $35 billion. That contrasts to 2009 when the amount of venture capital invested in new firms has dropped to the $3 - 4 billion range or 1/10th of what it used to be.
Second, storage startups should not expect to cash out anytime soon or, if they do cash out, to keep as much cash as they used to. The average time for an organization to go from its initial formation to achieving critical mass in terms of doing an IPO or getting some type of buyout is now approximately 10 years. This may involve up to three rounds of funding and the venture capital firm owning as much or more of the company than the individuals who initially started it.
Further adding to the pain of succeeding as a storage start-up, Sarbanes-Oxley has put onerous reporting requirements on these companies as they look to move from being a private organization to one that is acquired or goes public.
However before all of the storage startups in the room hung their heads and shuffled out of the room, there was a light at the end of the tunnel. Bell pointed to the many companies that had good news to share this last decade.
In the face of a challenging financial and regulatory climate, companies like 3PAR, Avamar, Compellent, CommVault, Data Domain, EqualLogic, Acopia Networks, and Lefthand Networks have successfully navigated this more challenging landscape and succeeded in doing IPOs or being acquired though, of the two outcomes, he said that acquisition is the more likely exit strategy.
He also provided a valuable piece of insight to those who are looking for VC funding. When he was asked what he looked for when he was investing in a company, he said that one of the most important factors that he looks at before investing is the management team at its helm. These are the individuals who have a passion to succeed and the right combination of leadership and management skills that will keep looking for a way to succeed even if the market into which they are selling changes.
He specifically pointed to his own experiences with EMC and how EMC evolved over its history. He said that in 1991, EMC was doing approximately $70 million in revenue, was losing money and was looking for new areas of growth.
At that time, it was looking to go into data storage and had a consultant come in to advise it as to wisdom of that decision. The consultant looked at the storage market and told EMC in his report that EMC would be out of its mind to go into storage.
Of course, two years later EMC promptly ignored that advice, bet the farm on storage, developed something called the Symmetrix and went on to become the 200 pound gorilla in the storage space.
He still sees the same thing happening today. In the last few years Data Domain turned deduplication into $2.4 billion dollar buyout. 3PAR has turned thin provisioning and its InServ Storage System into a company with a $650 million market cap and CommVault has made its singular method of doing data management into a company worth $1 billion.
So what does all of this means for end users and storage startups?
In terms of end-users, it means you still have to tread carefully when not purchasing from the incumbent because the odds are stacked against you of selecting a product from a company that eventually succeeds. However where there is a product that is both compelling and has a great management team behind it, the risk and cost of not adopting it may be greater than staying with the solution from the incumbent.
In terms of storage startups, there are more challenges than ever before. The good news is that for storage startups that successfully overcome these obstacles they are more likely to be a company that succeeds in doing an IPO or being acquired since they are profitable, have a solid management team and a great product to boot.
Those are my thoughts for this week. Thanks for stopping by and please check in again next week as I will be blogging from the 3PAR and NetApp analyst conferences.
For those of you unfamiliar with the BDevent, it is a semi-exclusive gathering of individuals that primarily focus on the data storage industry. Attendees consist of storage analysts, press and bloggers who cover the data storage space; emerging storage startups (Oxygen Cloud Storage), companies that fill niche roles in the storage industry (BridgeHead Software, dataStor, IceWEB, SEPATON) and business development managers from more well known storage providers (CA Technologies, HDS).
As is the tradition at these events, the BDevent begins with a keynote from someone who is in the "been that, done that" category of the storage industry and Bell certainly fits that description. He was one of the individuals who initially founded Storage Networks in the late 1990's when "cloud computing" was still "utility computing", saw the value of his company's stock soar to over $9 billion and then rode it to its depths during the dot.com crash.
Bell's trek from being a "multi-thousandaire" to a multi-billionaire back to a "multi-thousandaire" (or whatever Bell became) in a relative short period of time gives him a rather unique perspective on investing. This now heavily influences him in his current role as a venture capitalist in terms of how the availability of VC funds has changed in the last decade as well as what storage startups should expect going forward.
First, the availability of venture capital funds to invest in storage startups has dramatically changed in the last decade. According to Bell, in 2000 the amount of money available for investment in venture capital spiked at around $35 billion. That contrasts to 2009 when the amount of venture capital invested in new firms has dropped to the $3 - 4 billion range or 1/10th of what it used to be.
Second, storage startups should not expect to cash out anytime soon or, if they do cash out, to keep as much cash as they used to. The average time for an organization to go from its initial formation to achieving critical mass in terms of doing an IPO or getting some type of buyout is now approximately 10 years. This may involve up to three rounds of funding and the venture capital firm owning as much or more of the company than the individuals who initially started it.
Further adding to the pain of succeeding as a storage start-up, Sarbanes-Oxley has put onerous reporting requirements on these companies as they look to move from being a private organization to one that is acquired or goes public.
However before all of the storage startups in the room hung their heads and shuffled out of the room, there was a light at the end of the tunnel. Bell pointed to the many companies that had good news to share this last decade.
In the face of a challenging financial and regulatory climate, companies like 3PAR, Avamar, Compellent, CommVault, Data Domain, EqualLogic, Acopia Networks, and Lefthand Networks have successfully navigated this more challenging landscape and succeeded in doing IPOs or being acquired though, of the two outcomes, he said that acquisition is the more likely exit strategy.
He also provided a valuable piece of insight to those who are looking for VC funding. When he was asked what he looked for when he was investing in a company, he said that one of the most important factors that he looks at before investing is the management team at its helm. These are the individuals who have a passion to succeed and the right combination of leadership and management skills that will keep looking for a way to succeed even if the market into which they are selling changes.
He specifically pointed to his own experiences with EMC and how EMC evolved over its history. He said that in 1991, EMC was doing approximately $70 million in revenue, was losing money and was looking for new areas of growth.
At that time, it was looking to go into data storage and had a consultant come in to advise it as to wisdom of that decision. The consultant looked at the storage market and told EMC in his report that EMC would be out of its mind to go into storage.
Of course, two years later EMC promptly ignored that advice, bet the farm on storage, developed something called the Symmetrix and went on to become the 200 pound gorilla in the storage space.
He still sees the same thing happening today. In the last few years Data Domain turned deduplication into $2.4 billion dollar buyout. 3PAR has turned thin provisioning and its InServ Storage System into a company with a $650 million market cap and CommVault has made its singular method of doing data management into a company worth $1 billion.
So what does all of this means for end users and storage startups?
In terms of end-users, it means you still have to tread carefully when not purchasing from the incumbent because the odds are stacked against you of selecting a product from a company that eventually succeeds. However where there is a product that is both compelling and has a great management team behind it, the risk and cost of not adopting it may be greater than staying with the solution from the incumbent.
In terms of storage startups, there are more challenges than ever before. The good news is that for storage startups that successfully overcome these obstacles they are more likely to be a company that succeeds in doing an IPO or being acquired since they are profitable, have a solid management team and a great product to boot.
Those are my thoughts for this week. Thanks for stopping by and please check in again next week as I will be blogging from the 3PAR and NetApp analyst conferences.
Buyers Guides
Newsletter Signup
Leave a comment