LightSand Buys SANcastle

LightSand Communications Corp. has signed a definitive agreement to acquire SANcastle Technologies Inc., and as part of the transaction both startups' VCs will pour $7 million of additional funding into the combined venture.

LightSand CEO Philip Black, in an interview with Byte and Switch, says the deal involved a stock swap among four venture capital firms: LightSand's VCs, Fremont Group and Baring Private Equity Partners Asia; and SANcastle's backers, Concord Ventures and Genesis Partners.

The agreement brings together two small storage networking players that have approached the SAN extension market from different endpoints: LightSand sells equipment that extends Fibre Channel over Sonet networks, while SANcastle's equipment sends FC traffic over IP networks. It's Fibre Channel over whatever!

"We end up with a product line that goes from FC-over-Sonet at the high end all the way to Fibre Channel over IP," says Black, claiming that the new company will have a broader product line than either CNT (Nasdaq: CMNT) or Nishan Systems Inc.

Black says the deal is expected to close in about three weeks. "The deal was off and on -- and on and off -- due to technical and legal reasons," he says. LightSand had received about $30 million in funding to date; SANcastle had raised $34 million. Industry speculation that the two companies would hook up have circulated for several weeks (see More Beaver Tales).LightSand, based in Milpitas, Calif., will incorporate 18 SANcastle employees, including its engineering team based in Israel, with a total headcount of 34. SANcastle's Dallas headquarters will be shut down; Jim Keady, president and CEO of SANcastle, has resigned, according to Black.

After the acquisition, LightSand will have $7 million in the bank, which Black says should be enough to take it to cash-flow positive in early 2005. "We know we probably won't see any more money," he says.

LightSand's products extend FC over OC48 and OC12 links, with support for OC3 connectivity coming in a month or two. SANcastle has tested its FC over IP (FCIP) router over various IP networks, including the Internet (see IBM Demos With SANcastle).

The focus for LightSand now will be on building sales. "Both companies were predominantly engineering-based," says Black. "We're going to get an even blend between engineering and development."

A particular area of opportunity Black sees for the new LightSand is selling SANcastle's Fibre Channel router, which uses the Autonomous Regions with Domain Address Translation (AR/DAT) protocol to interconnect SAN fabrics in a hierarchical fashion (see SANcastle Retreats to FC Kingdom).He says most SAN architects don't design Fibre Channel networks with more than two hops because beyond that it becomes cumbersome. As a result, companies have had to resort to high-port-count, director-class switches to build large-scale SANs. With AR/DAT, users can interconnect small SAN switches in a manner similar to routed IP networks.

"We become a SAN connectivity company that complements what the big switch guys do," says Black.

He also notes that members of LightSand's board include chairman Kumar Malavalli, founder of Brocade Communications Systems Inc. (Nasdaq: BRCD); and Art Money, who was Assistant Secretary of Defense in the Clinton administration, responsible for all military communications infrastructure.

"We've seen strong demand for moving storage over distance in the government... not the least of which is because the Pentagon got a wakeup after 9/11 for not doing long-distance replication," Black says.

Todd Spangler, US Editor, Byte and Switch