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Founding investor still believes InPhase can fly

It's not a turkey, it's a phoenix in the making

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Comment A founding investor in defunct holographic storage developer InPhase is still hopeful of restarting the firm, even as 'For lease' signs go up on its building in Longmont, Colorado.

Bart Stuck is the managing director of Signal Lake Ventures which led the initial $27.9m A-round of funding for InPhase in January 2001. This involved Newton Technology Partners (NTP) and one other venture capital firm plus Imation as a corporate investor.

There was a B1-round in December 2002 ($6.3m) which bought in Hitachi Maxell as an investor, a B2-round led by NTP in March 2004 ($8.7m) which introduced four more investors, followed by a $32.1m C-round - again led by NTP which put in a substantial chunk of cash itself in May 2005 - to complete the commercialisation of the holographic storage technology.

This wasn't enough, and another $20m was stumped up by the existing investors in January 2008 to finish the product. That wasn't enough either, and people were laid off. The final 60 employees worked for a year on minimum wages until being paid off earlier this year. InPhase assets were temporarily seized by Colorado state authorities in lieu of taxes and now the InPhase building is up for re-leasing.

Most, if not all of the cash has gone - $95m of it - leaving a set of burned investors, disappointed channel partners, saddened and bitter employees, and a chunk of intellectual property. Nevertheless, Stuck seems confident that a re-funding deal could be announced in days, according to the Longmont DailyCamera.

What and where, then, is the value of InPhase?

The IP is patented and available. The experience gained during the tortuous struggle to manufacture the Tapestry drive will dissipate as the people who have it find other jobs. The senior management team failed to bring a sellable product to the market despite having five years and $52.1m of funding to complete the commercialisation and finish the product. If they are available, do they represent value to new investors or are they a failed team that needs to be discarded?

The existing investors obviously aren't happy to pour more cash into InPhase, otherwise they would have done so already. They may well feel that the company needs new senior management before they'll think about opening their wallets again.

But even if Stuck can persuade them and new investors that the technology can still be productised and that the manufacturing issues are solvable, there is the marketing issue.

What is holographic storage good at that needs doing and which nothing else can do as well?

A holo disk can hold 300GB of data for fifty years or more. It doesn't need periodically re-writing to fresh media as archive tapes, such as LTO, are said to need. It's small and compact. Hard disk drives (HDD) are much faster, beating the Tapestry drive's 20MB/sec bandwidth with contemptuous ease, but they don't last fifty years and the data will need re-writing.

Nevertheless, vendors do position tape and disk systems as being suitable for archive applications.

A Gartner analyst said: "I can tell you with some confidence that LTO and HDD are not effectively competing with high-end tape for archiving applications. Different markets, different technologies - no matter what the vendors say... Deep archiving, as it is currently practised, is about "off-line" storage that is meant to last for decades."

On this view, we might consign disk and tape to shallow, relatively short-term archives, with holo storage being the deep archive medium. How large is the deep archive market in terms of drives per year and media volume?

Since the market currently does not exist, then judgements have to be made of how much of the existing analogue media archives and tape/HDD archive market will move to a deep archive device.

We're talking about media files primarily: film, video, other graphics and music. The prime customers would be media-producing and media-owning companies like film studios, video production companies, animation houses, broadcasters, music producers and distributors. There will also be a need for deep archiving of data for regulatory and compliance reasons, in Iron Mountain-like repositories.

How much would they pay for reliable drives and trustworthy media? InPhase was gearing up for an $18,000 drive and $180 media. These price points never did get tested because InPhase ran out of cash.

Stuck wants to try again, and resurrect InPhase. His job is persuading investors that the ashes of ten years of unfulfilled development can generate a phoenix, instead of just the ashes. ®

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