Cereva's Back on Track

Cereva Networks Inc. has surmounted a key obstacle in its path to the next-generation storage networking market: Today, it announced the closing of $51 million in new equity funding.

The round comes not a moment too soon. Earlier this week, it seemed the startup had taken a turn for the worse in the wake of ongoing executive shuffling (see Cereva Skids to a Halt).

What a difference a day makes.

Cereva says it's on track now to release its product, a high-end switch-plus-storage array for use in carrier networks, by year's end. Trials are underway at service provider NaviSite (Nasdaq: NAVI) and at two private companies, the firm says.

Cereva's also in the process of recruiting a new CFO and head of sales to replace the executives who have left the building.Investors in this round include Matrix Partners, North Bridge Venture Partners, Oak Investment Partners, Goldman Sachs & Co., Intel Corp. (Nasdaq: INTC), WorldView Technology Partners, and Sumitomo Corp..

All of these investors also participated in Cereva's first round, which according to spokesman Bruce MacDonald, totaled "just under $110 million." Notably absent this time, however, were first-rounders Comdisco Inc. (NYSE: CDO) and Global Crossing Ltd. (NYSE: GX).

Some observers say they're concerned about the amount of equity Cereva may have surrendered to obtain this funding. "I'mcertain they have very little company left, pre-IPO," said one analyst, who requested anonymity. The analyst also indicated that poor equity terms may have prompted the defection of CFO Brian Cohen.

Notwithstanding, the round is not only a crucial cash injection for Cereva, it's also a blow toward restoring some of its industry credibility on several fronts. For one thing, it validates the track being taken by current management under the guidance of CEO Mahesh N. Ganmukhi, who replaced Cereva's original CEO Alan Lutz back in May (see Cereva: Stalled, Not Stopped).

Analysts say Ganmukhi's chosen to proceed more thoughtfully than his predecessor, an observation that was borne out when he climbed onto the shoulders of two of his key VCs (see Cereva Closes In On Round Three). Clearly, that move was on target.The new round also indicates that investors have faith in Cereva's vision, despite its executive musical chairs and numerous tangles with the press -- including misrepresentations of its original trial customer lineup.

Back in May, for example, GiantLoop Network Inc. told Byte and Switch in no uncertain terms that despite Cereva's claims, it had no intention of trialing the startup's wares.

"Cereva's had some execution-related issues on multiple fronts," says Tony Prigmore, senior analyst at consultancy The Enterprise Storage Group Inc., "but they have reset their expectations, and with this round it looks like they're going to get to market."

The trek to success won't be easy. Among the chief competitors Cereva's facing is 3PARdata Inc., which recently announced new management, on top of its own $100 million round of funding from several influential strategic partners (see 3PARdata is Ready).

Prigmore warns that Cereva could face many more competitors as well. "There are number of companies involved in next-generation storage, some in stealth mode now," he says. Still, all of them, he maintains, will need plenty of funding to get to market.At least for now, Cereva's in a good place, according to Prigmore: "Any company that can close $50 million in funding in this economy has done something right."

Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com