3PAR Pockets $32 Million

Armed with $32 million, from a fourth round of funding, and some sales momentum, executives of storage array startup 3PAR say they can see a distant light of profitability at the end of a long tunnel.

3PARs first funding round in 31 months brings its total raised so far to $153 million. The fresh money is earmarked for building a direct sales force and investing in reseller deals in the U.K., Europe, and Asia. Menlo Venturesled the financing round and was joined by previous investors, including VC firms Mayfield

and WorldView Technology Partners, and strategic investors Veritas Software Corp. (Nasdaq: VRTS), Sun Microsystems Inc. (Nasdaq: SUNW),and Oracle Corp. (Nasdaq: ORCL). Menlo Ventures’ Mark Siegel joins 3PAR’s board of directors.

3PAR CFO Bill Kurtz says this is the last funding the Fremont, Calif.-based company will need. He says 3PAR sales doubled in six months after the company began offering what it calls "thin provisioning" software on its SAN systems last June, and half of its existing customers have made repeat purchases since it rolled out its original product in June 2002.

While it has yet to seriously threaten any of the established competitors and won’t disclose its total number of customers, 3PAR claims 17 Fortune/Global 1000 customers and substantial repeat business. Its customers include Merrill Lynch, American International Group (AIG), and American Management Systems. Kurtz says a typical 3PAR customer upgrades within six months and purchases a second system within a year.

If these trends continue, Kurtz says, 3PAR could achieve its goal of profitability within two years.Of course, it gets tougher to keep doubling sales after an initial rollout. But don’t count out 3PAR, which has outlasted a raft of SAN startups and gotten the jump on some big players such as IBM Corp. (NYSE: IBM), EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), and Hitachi Data Systems (HDS) by offering a viable product focused on a key aspect of utility computing.

“We’ve seen a significant uptick in the last six months because of thin provisioning,” Kurtz says.

Thin provisioning is a twist on the capacity-on-demand or pay-per-use concept that requires customers to house more capacity than they need and pay for what they use. 3PAR lets users create virtual volumes on one of its systems without actually purchasing or installing the entire amount of disk storage.

For example, a database may be assigned a volume sized at 4 TBytes, but the 3PAR system could have just 1 TB of disk capacity in place if the application uses less than that (see 3PAR Spins Disk Trick). That actually encourages customers to buy less disk space -- something the SAN giants would never consider, but that allows a startup to get a lower-cost foot in the door.

Like any SAN startup, 3PAR has had plenty of those doors slammed on its feet along the way. After raising $121 million through July 2001, the company pushed out its first product in June 2002 (see 3PAR Tees Off) but was down to $50 million when it axed 42 people (20 percent of its workforce) in November 2002 (see 3PAR Swings Club). Headcount has since come down another 20 or so to approximately 150. Still, along with XIOtech Corp., 3PAR is still standing in a tough market.Kurtz claims 3PAR isn’t trying to beat entrenched competition -- it just wants a sliver of what it considers a $20 billion networked storage market. To do that, it needs to keep moving. "Our plan is to grow faster than the market.”

— Dave Raffo, Senior Editor, Byte and Switch