Storage unicorns and their hyped-up horns

Facing impalation on their own bony proboscii

Wondrous fable or dangerous delusion?

Comment A venture-capitalist-tracking website has revealed a list of unicorns, which are startups valued at a billion dollars or more. Eight storage companies are in the list; does this mean a glorious outcome for them?

The CB Insights’ list contained these familiar names:

  • Dropbox at $10bn (£6.4bn), and hence a “decacorn”
  • Cloudera at $4.1bn (£2.6bn)
  • Pure Storage at $3bn (£1.9bn)
  • Nutanix at $2bn (£1.3bn)
  • MongoDB at $1.6bn (£1.0bn)
  • Infinidat at $1.2bn (£0.8bn)
  • Actifio at $1.1bn (£0.7bn)
  • SimpliVity at $1bn (£0.6bn)

The exit doors for the backing VCs are labelled "IPO" or "acquisition," and a minor one is being called the "bought out" door, when a later VC or private equity investor buys out the earlier ones, generally at a loss or much less than 5X payout.

The Unicorn status comes from the companies being valued at $1bn (£0.6bn) or more. Valued by who and how? The valuation is by the startup and its investors. There is a lot if self-interest here, as VCs agreeing unicorn status could get their money out of the company first (plus fees or interest or other contract-negotiated extras) when there is an IPO or acquisition, thus lowering their investment risk.

Like the unicorn itself then, billion-dollar startup valuations can be mythical, with a fairy tale element.

Each of the companies above needs an IPO or an acquisition at the valuations above for the investing VCs to make their desired cash. Will they succeed?

Dropbox faces intense competition, and its revenue-raising ability is compromised by its freemium business model. Competitor Box went public at the start of the year with stock trading at $23.23 (£14.89); shares now change hands at $17.06 (£10.93) and it’s valued at $2.1 bn (£1.3bn). Rate Dropbox as a likely fail.

Cloudera also faces strong competition from other Hadoop-focussed startups. If Big Data take-up falters, then provisionally put Cloudera down as a fail.

Everyone acknowledges that Pure Storage is doing well perception-wise, but is it cutting the sales mustard? Its competition from mainstream vendors is getting ferociously stronger, and it faces a secular challenge with shared storage arrays moving to Server SANs and scale-out hyper-converged appliances. Every existing shared storage vendor will focus on flash products to grab share from disk-based products.

Pure is not first to market with 3D TLC flash – that laurel was seized by Dell, and Pure has no scale-out ability to speak of, or presence in the hyper-converged market. It has been doing well, that’s unquestionable, but has it peaked? Is it about to peak? Mark it down as a potential fail.

Nutanix is striding ahead of the hyper-converged infrastructure appliance (HCIA) pack, being chased by VMware, SimpliVity, HP, EMC, and a host of others. IBM hasn’t got any HCIA products out there yet, while Dell resells Nutanix, and Cisco UCS servers feature in many partnership arrangements. Nutanix is energetically and aggressively developing its technology and could retain its lead. Rate this unicorn as a potential success.

MongoDB is an 8 year-old open source company and has a great platform of users. It could make it.

Infinidat, on the other hand, is an early-stage hardware company backed by veteran storage wizard Moshe Yanai. Its valuation seems absolutely crazy, being based on very early product with no track record worth a dime. The Yanai-istas believe in their man and faith can move mountains, but can it bring unicorns to life? We’ll believe it when we see it; fail for now.

Actifio and its virtualised copy reduction and management tech has two main competitors: Delphix with copy data virtualisation technology, and Catalogic with its copy-focussed system management tool. None of the mainstream middleware, server system, or storage software vendors have anything quite like the generalised applicability of these three.

We think Actifio could be a success and that Delphix could have unicorn status itself, if its execs and VCs were so-minded. If so, we rate it a potential success as well.

SimpliVity is another HCIA startup, like Nutanix. If it can withstand the competition from VMware, EMC, and others, and grow its sales at a continuing 250 per cent or so rate (per quarter using annual compare) as it has been doing, then it could have a successful outcome too.

Our potential winners in the unicorn stakes are Nutanix, MongoDB, Actifio, and SimpliVity. The ones we don’t rate so highly are Dropbox, Cloudera, Pure Storage, and Infinidat. That's our opinion, and if you don't like it, well, we have others. ®

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