Start-ups alter $15-billion computer storage industry

August 29, 2013 7:01 pm

Start-ups alter computer storage

By Richard Waters in San Francisco

The prospects of an upheaval in a $15bn segment of the computer storage industry caused by the rise of a new generation of start-ups has started to draw substantial investment to the area, to judge from the latest bout of financing news this week. Pure Storage, a private company based in Silicon Valley, said yesterday that it had raised $150m from a handful of the biggest US fund groups in a prelude to seeking a stock market listing.While the four-year-old company’s revenues are estimated to be only in the low tens of millions of dollars, the fundraising has given it a valuation roughly in the middle of the $1bn-$2bn range, indicated Scott Dietzen, Pure Storage’s chief executive.

News of the financing followed the disclosure earlier in the week that Violin Memory, another storage start-up, had filed for an initial public offering to raise up to $172.5m, despite reporting losses that ballooned to $109m last year.

Both companies are part of a new generation of storage companies that have risen on the back of flash, or solid-state, technology, which has started to make inroads into the data centre market that until now has been the preserve of disc drives.

Until recently, flash technology was considered too expensive and unreliable to meet the large-scale storage needs of big companies. However, thanks to the same gradual decreases in chip prices that have also characterised the computer processor market, flash storage has started to move into wider use, extending gains made earlier in consumer technology markets.

The early stage of the market meant that many customers were likely to turn to established tech suppliers rather than start-ups, said Henry Baltazar, a storage analyst at Forrester Research.

He added, however, that tumbling technology prices and demand for new high-performance applications such as real-time data analytics had put companies such as Pure and Violin in a good longer-term position. EMC, the market leader in storage, made its own foray into flash 15 months ago with the $400m purchase of another start-up, Xtremio.

Pure put the cost-per-gigabyte of its products at $3-$4, a level at which it now competes head on with the price-performance of older disc drive technology, said Mr Dietzen.

He attributed the cost reductions to software innovations such as data de-duplication and compression, which use available storage space more efficiently, as well as the falling costs of flash.

Pure, which has now raised a total of $245m, said the latest funding round was designed to carry it through to an IPO that could come next year or in 2015. The round was led by fund groups T Rowe Price, Tiger Global Management and Fidelity Investments. The investment groups have been among the most active investors in late-stage private companies, giving them an early look at some of the most promising up-and-coming technology businesses in the US.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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