EqualLogic Defies The Odds

Between 2000 and 2003, venture capitalists poured $3.64 billion into more than 300 “database and file management” companies, according to Thomson Financial. It reeked of desperation from VCs who had just struck out on ecommerce, nanotech, etc. The problem must be sector focus, they thought, not over-funding. If we just keep digging, there must be a homerun in there somewhere…

No surprise, but many of these companies floundered. Not only were there too many of them, but they were in competition for a waning customer pie born of macro-economic difficulties (axe, meet new infrastructure purchase). So when yet another database and file management company got funded, it was met with a collective eye-roll. Particularly if its primary business was “storage area networking,” which was the buzzword used by nearly one-third of the aforementioned startups.

All of this leads us to EqualLogic, a Nashua, N.H.-based… storage area networking company, which raised $12 million in Series A funding from Charles River Ventures and Sigma Partners in 2001. EqualLogic’s thesis was that the storage space was simply too complicated, due to the limited and proprietary nature of existing commercial verticals. The solution, it felt, would be to transpose the plug-and-play nature of Ethernet on storage (i.e., make it easy). Interesting concept, but folks like me didn’t pay too much attention. In fact, EqualLogic didn’t even merit its own write-up in PE Week.

Oops.

EqualLogic today announced that it will be acquired for approximately $1.4 billion by Dell. It is the largest all-cash M&A exit ever for a VC-backed company (according to VentureSource), and is particularly noteworthy considering how so many of its storage peers have since fallen by the wayside. For context, EqualLogic’s final round of VC funding came in 2004, at a post-money valuation of under $100 million, from CRV, Sigma, Focus Ventures and TD Capital Ventures. Oh, and it’s based in New England – a region that really was in need of a VC-backed tech homerun.

The company was actually scheduled to begin its IPO road-show tomorrow ($125m cover price), with most market watchers expecting major public market success. But Dell was fairly persistent in its pursuit – as was another attempted acquirer – and the EqualLogic board opted for a big-time payout and some valuable strategic synergies.

“There was a lot of money invested in the storage space back when we first funded EqualLogic,” acknowledges Greg Gretch, a managing director with Sigma Partners. “But this was a class VC success story in that the company management was a group of tech people with a novel idea and vision… and those ideas combined with execution helped them succeed within a crowded market.”