LeftHand Palms $25M

LeftHand Networks Inc.picked up $25 million in funding today, as it aims for profitability now that the IP SAN market it helped usher in is gaining steam (see LeftHand Secures $25M).

The round brings LeftHands total funding to $75 million, and CEO Bill Chambers says he doesn’t expect to go back for more.“This will be our final round of funding,” Chambers says. [Ed note: This Chambers denies any ties of blood or influence with another, better known, Chambers in the tech field.] “This provides the business with all of the capital it needs.”

Chambers plans to expand LeftHand’s sales and development teams. He expects to grow the census from 125 employees to 150 by the end of the year. He says LeftHand has more than 500 customers and 2,000 of its systems in production. LeftHand recently expanded its sales into Europe, and Chambers plans to make a push into Asia with the new funding (see LeftHand Makes Headway Into Europe).

But the main goal of the round is to take LeftHand to profitability -- even though LeftHand execs said the same thing after their last round in 2003 (see LeftHand Snatches $20M).

In its defense, the startup was ahead of the IP SAN curve back then. Although it started shipping an IP SAN in 2002, the market didn’t really form until last year (see LeftHand Offers IP SAN, Startups Look to iSCSI Surge and IP SANs Are Sizzling). Now IDC

forecasts IP SAN revenues will reach $2.7 billion by 2008 -- up from $113 million in 2004.“A few years back, we spent a lot of time evangelizing and explaining what iSCSI was,” the happily named Chambers says. “Today, customers know what it is.”

Like fellow startups EqualLogic Inc. and Intransa Inc., LeftHand now must fight established Fibre Channel SAN vendors to cash in on the market it helped create.

Network Appliance Inc. (Nasdaq: NTAP), for instance, which offers iSCSI connectivity for all of its SANs, has been a loud IP SAN supporter and led the market with 41.6 percent share last quarter according to IDC (see NetApp Banks on iSCSI). EMC Corp. (NYSE: EMC), which isn’t quite as vocal about iSCSI as NetApp, introduced an IP SAN last February and was second to NetApp with 26 percent share last quarter (see EMC Mounts iSCSI Blitz and IP SAN Serves Two Masters). IBM Corp. (NYSE: IBM) is also in the iSCSI space, but has yet to see significant sales with the system it sells through an OEM deal with Adaptec Inc. (Nasdaq: ADPT) (see IBM Slips iSCSI Into SAN and Storage OEMs Set to Shuffle Deck).

Chambers expects the roster of competitors to keep growing. “We’ll see more of them coming in,” he says. “It helps to validate iSCSI as a standard. Until recently we’ve been competing with them as Fibre Channel vendors, and they’ve been saying, ‘Hey Mr. Customer, you don’t want to use iSCSI.’”

To differentiate itself from most IP SAN system suppliers, who use proprietary hardware, LeftHand claims to use standard off-the-shelf hardware to run its SAN/iQ IP SAN management software. It also sells SAN/iQ bundled with hardware from partners such as Crossroads Systems Inc. (Nasdaq: CRDS), MPC Computers, and Verari Systems Inc.Chambers acknowledges selling more systems on LeftHand's "off the shelf" hardware than on its partners' platforms, but he expects that to change. He sees hardware becoming commoditized with the value of SANs residing primarily in the software.

“I’m seeing a trend we saw in the computing space about a dozen years ago,” he says. “Customers used to buy everything vertically integrated from one vendor. Then we saw a shift towards standards-based platforms. Today customers buy servers and load the applications of their choice on it. We’re seeing early stages of the same thing happening in storage.”

Valhalla Partners led the funding round, with J.P. Morgan Chaseand LeftHand’s previous investors participating.

— Dave Raffo, Senior Editor, Byte and Switch