Startups face logjam as the trickle towards the exit turns into flood

It's acquisition or IPO – but do it quickly, as the alternatives aren't pretty


Floatation devices

It makes you think. Seventy IPOs? I don’t think so. Seventy acquisitions? I think not.

We can attempt to dive in and separate out some start-ups. Ones with billion-dollar valuations are maybe less likely to be acquired, as they may simply cost too much. Its IPO or nothing for them, unless they can demonstrate and prove visible and sustainable high-growth potential above and beyond their competition, as Data Domain and Isilon did when EMC bought them.

Candidate start-ups in crowded categories facing acquirers who already have technology in that category face an IPO-or-nothing future, too. Potential object storage acquirers are Cisco, Dell, and IBM, in that they have no in-house object technology. I don’t think Seagate or WD want object storage technology yet, especially as WD’s HGST business has it already (Amplidata). At best there are 4 potential object storage acquirers and 11 potential acquirees, leaving 7 behind who face having to IPO or a lingering failure to launch, followed eventually and at best an acquisition as a distressed, effectively nearly failed company.

Nexsan is an example here, with a history of failed IPO attempts and then an acquisition by Imation which, so far, has not turned out well.

The three hybrid array start-ups; Tegile, Tintri and X-IO, left behind by Nimble Storage which has IPO’d already, are looking at acquirers who mostly already have hybridised their in-house arrays (HDS, NetApp, Dell, HP, IBM) or have their own offering (EMC, VSPEX BLUE). That leaves Cisco, and again maybe Seagate and WD. Not a long list that could whet the appetites of VCs looking for an acquisitive exit.

It’s an IPO guys: better go for it.

The software storage category needs subdividing. Some companies are in crowded areas, such as the virtual SAN one, with DataCore, Sanbolic, Nexenta and the software-defined hyper-converged folks, while others, such as PernixData, have a unique offering that bodes well for its future.

Should start-ups prepare for their exits and include what happens if an IPO is not viable and an acquisition by a major storage company unlikely? For example, look at X-IO. It was founded in 1995 and still hasn’t IPO’d or been acquired. Commendable persistence has been demonstrated by its VC (Oak) but will it ever get back a 4X/5X payout on the money that it’s invested? Unlikely, surely.

Perhaps a new form of private equity business is needed, one that buys up failing start-ups, restructures their assets to build new companies and sells those off or floats them. It’s better than a simple collapse, as Coraid suffered, but it sure isn’t start-up exit glory.

That’s the trouble with races. Getting gold, silver and bronze medals is great, but start-up territory is not like the Olympics. The glory is not in taking part, it’s in winning.

Welcome to the Silicon Valley Storage Casino; put your million-plus dollar stakes on the table and pray you get back more than bits. Most of you won't. ®


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