VCJ Report: Big Money in Data Bottlenecks

Reading about the latest growth in digital data traffic and storage capacity is an easy way to make the head spin.

Last year, for the first time, digital data creation surpassed one zettabyte—the equivalent of 1,000,000,000,000,000,000,000 individual bytes, according to research firm IDC. That’s a more than five-fold increase from the levels of just four years earlier, estimated at 161 exabytes, which was itself enough bytes to contain about 3 million times the amount of information in all the books ever written.

The explosion in data, not surprisingly, is putting a heavy strain on the keepers of all those bytes, as data growth is among the top three concerns for IT departments.

Among venture capitalists, it’s a trend that hasn’t passed unnoticed, and it appears to be a central thesis behind several very recent, relatively large funding rounds. In May and June, VCs invested more than $140 million in at least seven companies developing data center-focused technologies, according to Thomson Reuters (publisher of Venture Capital Journal and this blog).

“What we’re seeing is enterprises have a lot of capex being outlaid into data center building, and in each we’re seeing a higher density of computer servers,” says In Sik Rhee (pictured), a general partner at Rembrandt Venture Partners and a co-founder of data center automation pioneer Opsware, which was acquired by Hewlett-Packard in 2007 for $1.6 billion.

“Plus, with the growth of data, the need to have a faster, more efficient way of moving data is becoming more of a pain point,” he says.

The chance to alleviate that pain point, Rhee says, was a key reason why the firm led a $15 million Series B round in June for Infineta Systems, a San Jose, Calif.-based company that recently began marketing a hardware and software system for moving traffic between data centers. It’s in a niche, Rhee says, where a lack of competitive offerings from incumbent technology providers means enterprises are open to patronizing a startup.

What’s more, there are exits for VCs, as VCJ Senior Reporter Joanna Glasner reported in the July 2011 issue.

Take for example Fusion-io, which develops flash-based memory platforms for data centers. The Salt Lake City-based company raised $234 million in its June 9 IPO after hiking its offering price multiple times. New Enterprise Associates holds a 33% post-IPO stake while Lightspeed Venture Partners has an 11% post-IPO stake. The company raised $114 million in venture funding between 2008 and 2010, according to Thomson Reuters.

Another notable exit is Milpitas, Calif.-based Pliant Technologies. The 4-year-old company, which develops enterprise flash-based storage devices, sold to SanDisk in May for $327 million plus equity incentives.

“Four years is a quick exit, but that’s also a sign that the market’s heated up,” says Barry Eggers, managing director at Lightspeed, which was Pliant’s largest shareholder. “There will be more activity like this.”

Subscribers of VCJ can read the full story about the explosion in data needs and how VCs after going after the market by clicking here. The story includes a table of recent deals in the space.

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And if you want to talk more about other interesting sectors of interest for VCs, send an email to VCJ Editor-in-Charge Alastair Goldfisher at [email protected].

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