OnStor & the resurrection of the storage companies

OnStor, a Campbell, Calif. company offering data storage for large companies, is the latest hoping to exploit a turn in fortunes in this once-dead sector. It has just gotten $27 million in more funding from venture capitalists who now have pumped $105 million into the seven-year-old company.

Storage companies are once again filing to public, despite very questionable fundamentals for many of them — but their private investors see a window of opportunity to finally get the companies off their hands. OnStor revealed its revenue growth to VentureBeat (see below), and it’s impressive. However it is still not profitable, it says, something it says will change over the next year.

Q1 2006 = $743,925 Q1 2007 = $3,778,911
Q2 2006 = $952,008 Q2 2007 = $4,322,575

Let’s rewind to 2002. This sector was filled with “walking dead” companies in this sector. After the bubble burst, Internet companies were reeling, the last thing peopled needed was more storage. Or if they did, they didn’t need 165 storage start-ups supplying it. That’s the number of companies venture capitalists funded in the preceding five years, as we cited at the time (sorry, article is long since buried in the Mercury News archives). VCs had pumped in about $2 billion into these companies amid a frantic lemming rush, and now if those companies weren’t dying, they were slashing their workforces in a desperate will to survive.

The need for storage always remained. Big corporations need help storing and securing the vast amounts of data they compile from managing business processes, from supply chains and inventory to customer relations.

Back to 2007. The public markets are doing well (or at least were doing well, until the shocks of recent days), and some storage companies are going public after hunkering down for years. And yet, some of the look worrying still. Isilon Systems, a similar company to OnStor, which went public in last year after $70 million in backing, has suffered recently, announcing greater than expected losses..

OnStor says it has 300 customers. Like other older start-ups, it’s discovering new sales pitches for new times. For OnStor, it’s the “greening of the data center,” in other words, making a company’s data infrastructure more efficient and thereby using less electricity helping save the environment. It does this better than big incumbents like NEC and Netapp, it says.

OnStor says its “storage arrays” offer a 95 percent power savings, 90 percent fewer devices to manage and 90 space savings (!). We haven’t verified this, but it’s a nice pitch, huh, given that many large corporations are issuing “green” mandates to do their part in fighting global warming.

The funding comes from Sand Hill Capital and existing investors Foundation Capital, Mayfield Fund, ComVentures, and Worldview Technology Partners. They’ve called this a “mezzanine” round, a term used as a clear signal to the market that this is the last round before going public.

The Taneja Group, a third party research group, is about to finish a white paper for OnStor about the greening of the data center.” It’s due out any day, and we’ll be interested in seeing what it says.