Aarohi Announces Funding... Again

Honk if youve heard this before: Storage chip vendor Aarohi Inc. today announced a financing round with McData Corp. (Nasdaq: MCDTA) as one of the lead investors.

Sound familiar? It should, because McData disclosed its investment in Aarohi back in August (see McData Signs Deal With Aarohi). McData contributed $6 million to Aarohi’s $13.5 million "B1" round, giving it approximately 15 percent ownership in Aarohi. McData also holds one of Aarohi's five board-of-director seats.

So why did the announcements come four months apart? Because each company sought to benefit from the timing.

McData, in fierce competition with Brocade Communications Systems Inc. (Nasdaq: BRCD) and Cisco Systems Inc. (Nasdaq: CSCO) in the SAN switching market, announced its investment before Aarohi closed its round, hoping to make known as soon as possible that it had access to Aarohi’s FabricStream technology for its intelligent switch platforms. McData took a charge related to the investment in its third-quarter earnings statement.

Aarohi claims its FabricStream data streaming architecture gives its storage chips better packet-processing performance and lower I/O latency compared with general-purpose CPUs, network processors, and components in host bus adapters. McData backs this up, saying Aarohi’s technology gives it a significant time-to-market advantage for its intelligent switch platforms.But Aarohi’s marketing VP Joel Warford says his company held back the news of McData's investment because Aarohi was still raising money in August. If it announced the round then, investors might have been confused, he says, thinking the startup was opening another round. “It wasn’t closed at the time from Aarohi’s perspective,” he says of McData’s August announcement.

Aarohi subsequently raised another $7.5 million from Infineon Technologies AG (NYSE/Frankfurt: IFX) to complete its round. The $13.5 million brings Aarohi’s total funding to date to $36.5 million. “The expectation is that it will get us through 2004 and into the early part of 2005,” Warford says.

The company plans to use the money to hire from six to eight new employees in sales, marketing, product development, and customer service. That would bring the head count to around 60. Warford says the hires would be in the company’s San Jose, Calif., headquarters and its development center in India.

— Dave Raffo, Senior Editor, Byte and Switch