Isilon Ices Cool $15.5M

Startup Isilon Systems's decision to target digital content with its storage systems seems to resonate with investors.

Isilon today announced it's received $15.5 million in a third round of funding led by global investment banker Lehman Brothers (see Isilon Raises $15.5M, Supplies LexisNexis). Previous investors, capital venture firms Sequoia Capital, Atlas Venture, and Madrona Venture Group LLC, participated.

Isilon, which specializes in digital content storage, has raised $38.9 million over three rounds. Brian Paul of Lehman Brothers joins Isilons board, which already has two directors from Atlas and one each from Madrona and Sequoia, along with Isilon CEO Steve Goldman and founder Sujal Patel.

Isilon is among the storage vendors looking to cash in on the growing digital video wave that has significantly increased the storage needs of movie studios and broadcasters (see Storage Vendors Watch Video, SGI Gains Hollywood Clout, and Storage Goes to the Movies).

Isilon designed its IQ NAS system specifically to handle large files of digital content. It does this mainly through a proprietary OneFS distributed file system, designed in modules. Each IQ node holds 1.44 Tbytes of capacity, allowing companies with growing storage needs, such as digital production facilities, to scale their purchases as they need more. The file system links content across the nodes to eliminate a single point of failure.Isilon is counting on this design to help it battle other storage vendors that have moved into the digital media space. NAS giants EMC Corp. (NYSE: EMC) and Network Appliance Inc. (Nasdaq: NTAP) consider digital storage a key market, as do Silicon Graphics Inc. (SGI) (NYSE: SGI), Avid Technology Inc. (Nasdaq: AVID), Rorke Data Inc., and BlueArc Corp.

Despite the competition, Isilon appears to have made a mark. Its customers include Paramount, digital image library Corbis, and postproduction house FotoKem. Its 2004 plans call for widening its customer base from mostly media and entertainment companies to life sciences and natural oil and gas firms. What's more, Isilon's newest customer, announced today as well, falls into a different category: LexisNexis is using the Isilon IQ system to store and deliver legal documents.

CEO Goldman think it's all helped the company attract a particular type of investor this time around. “We felt like we had adequate investment from the venture community, and we wanted to add an investment bank,” he says. “We wanted a somebody with that level of expertise. Eventually we’ll look to public markets, not just private markets.”

Hang on. Even though Isilon lead investor Lehman Brothers is among the firms planning to take LSI Logic Storage public this year (see LSI's Storage Sub Plans IPO), its participation in this round doesn’t mean Isilon is close to going public yet. Goldman doesn’t rule out more funding and won’t discuss any timetable for profitability.

He does say Isilon plans to use the funding to expand sales, marketing, customer service, and business development with rapid staff expansion. His plans call for increasing headcount from around 70 now to close to 100 by the end of the year, with extra sales reps spread around the country and, eventually, internationally.— Dave Raffo, Senior Editor, Byte and Switch