 |
 |
 |
 |
 |
 |
 |
 |
 |
Something Ventured: Blade Server Start-Ups Get VC Attention
Originally published in DowJone Newswire, February 28, 2007
Space constraints, increased interest in application hosting and rising energy
costs are driving more demand for "blade servers", which in turn is prompting
more venture capital dollars to flow into that market.
While blade servers, or server chassis that house multiple thin circuit
boards, have been around for years, a shift toward hosted software applications
coupled with rising energy costs and limited space in data centers have made
them more attractive.
International Business Machines Corp. (IBM), the 800 pound gorilla in the
technology market, is aiding blade start-ups with its Blade.org program, which
provides partnership opportunities and development aid.
IBM has chosen to partner with blade companies instead of taking an equity
stake because IBM, which makes blade servers, wants to grow the market and boost
its revenue.
According to Armonk, N.Y.-based IBM, more than $1 billion in global venture
capital has flowed to companies focused on the blade market since Blade.org was
started a year ago. Long gone are the days where start-ups can get VC funding
without having any revenue, said Claudia Fan Munce, vice president and managing
director of IBM Venture Capital Group, noting the ability to partner with IBM
makes Blade.org start-ups successful.
Andrew Kau, a managing director at VC firm Walden International, credits the
Internet boom of the late 1990s and early 2000 for the rising popularity of
hosted applications that can be accessed over the Internet. That increased
demand has taxed data centers that host applications but are increasingly
running out of space.
Enter blades, which Kau says is the most cost-effective route for data centers
rather than having hundreds of standalone servers. He adds that blades are
easier to manage.
"Those are big advantages," Kau said. "As VCs, we like that because there's a
paradigm shift going from the PC to the data center."
Kau's Walden invests in everything from start-up companies creating software
for blades to hardware companies developing blade servers.
"We've invested in a whole variety of companies in and around blades," Kau
said, although noting that more VC dollars are going into the software side of
the business than the hardware.
One of Walden's investments is Narus Inc., the Mountain View, Calif.-based
Internet infrastructure security and surveillance company. Narus, which helps
protect the Internet for telecommunications carriers, corporations and even
countries, makes security software that runs on blades.
Another investment is Teak Technologies, the Orange County, Calif.-based
hardware company that makes hardware that helps data centers optimize their data
center traffic on blade servers. Kau noted that Teak and Narus are members of
Blade.org, which the VC said is helpful.
"By definition start-up companies have no track record and building something
new is much easier to get customers comfortable with a big partner and
ecosystem," said Kau, whose firm has invested hundreds of millions of dollars in
blade companies but declined to specify the amounts invested in the companies
mentioned
Meanwhile, Kevin Fong, a managing director at Mayfield Fund, which first
started looking into the blade market about three years ago, said the interest
from VCs is also being driven by the popularity of virtualization.
Fong said that while the initial focus on blades was to save space and power,
the market became more interesting to the VC community thanks to virtualization.
He pointed to the success of EMC Corp.'s (EMC) VMWare as an example of demand
for virtualization. EMC is spinning out a stake in VMWare.
The way Fong sees it, the best investments in the blade server market are in
the ecosystem, not the actual server blade hardware companies. He said the
hardware market is a tough area for investments, even though Rackable Systems
Inc. (RACK) of Milpitas, Calif., was a ventured-back company that eventually
went public.
Like Walden's Kau, Fong has also made an investment in Narus. While Fong
declined to name any new investments the VC firm is getting ready to make in the
blade market, he did say he's looking.
"Its a huge market," said Fong. "We are talking about the reinvention of the
data center."
