SAN Valley's Secret Sale

Fibre Channel over IP (FCIP) gateway maker SAN Valley Systems LLC was quietly sold to Silicon Valley mogul Carl Berg at the end of March 2003, Byte and Switch has learned.

SAN Valley executives declined to comment on the financial details of the deal. We are no longer SAN Valley Inc. -- we’re just SAN Valley,” says Sandy Helton, the company’s founder, president, and CEO. “We no longer have a board of directors or VCs chasing us and telling us what to do.”

And that’s a good thing, according to Helton. As SAN Valley failed to secure an anticipated funding round last October, he says, the company’s VCs started threatening to force it into bankruptcy (see SAN Valley Slips Into Ditch). At the time, the startup slashed its staff down to 15, and a former employee told Byte and Switch that it didn't have more than two to three weeks worth of cash left.

Then, in February of this year, Emulex Corp. (NYSE: ELX) called off its deal to acquire SAN Valley at the last minute, seemingly exhausting the startup's last hope of survival (see Emulex Jilts SAN Valley and SAN Startups on the Block).

SAN Valley, which Helton founded in 1999, raised $40 million in total from Agilent Ventures, Cisco Systems Inc. (Nasdaq: CSCO), Innovacom, Moore Capital Management Inc., UpStart Capital, and Vertex Management Inc. But it never even came close to profitability, despite a respectable list of customers and a reseller deal with industry giant Hewlett-Packard Co. (NYSE: HPQ).By selling the company to Berg, who runs a number of companies, including West Coast Venture Capital LLC, SAN Valley not only saved itself from extinction but also put the company's original management back in charge. Robert Coackley, who had taken over as president and CEO just after September 11, 2001, handed the company back to Helton after the sale. "Some of the management was not retained," Helton says. "The original founders of the company are back in charge."

Coackley, meanwhile, has not been hanging out watching daytime TV since then: He dove straight into a brand-new software venture, Saleen Systems Inc., aimed at Linux-based clustered computing (see Will Saleen Sing?).

Berg, we should mention, is the same fellow who bought up the leftover inventory of Gadzoox Networks, the Fibre Channel switch company that filed for bankruptcy in August 2002. Chipmaker Broadcom Corp. (Nasdaq: BRCM) ended up buying Gadzoox's intellectual property (see Broadcom Bids for Gadzoox). Perhaps he's putting together a mini-SAN empire? Berg, who also owns commercial real estate company Mission West Properties Inc., didn't return phone calls by press time.

Since the sale, Helton insists that SAN Valley has not only held onto its customers and partnerships but that its business has actually picked up. He says the startup, which still has 15 employees, is doing so well, in fact, that it shouldn’t have to go out looking for any more money. “We have a substantial financial commitment already,” he says. “It’s enough to take us to profitability.”

If nothing else, SAN Valley stands to get a fabulous deal on the lease for its next offices.— Eugénie Larson, Senior Editor, Byte and Switch