Can Candera Compete?

Startup Candera Inc. today announced an additional $2.5 million of venture funding -- bringing its total funding to date to more than $47 million -- as it gets ready to ship its SAN management switch in the next few months (see Candera Locks $2.5M More Funding).

The latest investment, which the company calls an extension of its second round, came from two Taiwan-based investment firms: AsiaTech Management LLC and Hotung Capital Management Inc. Previous investors in Candera, which changed its name from Confluence Networks last fall, include Venture Strategy Partners, Redpoint Ventures, New Enterprise Associates (NEA), Dali Hook Partners, Comcast Interactive Capital, and Seagate Technology Inc. (NYSE: STX) (see Confluence Changes Name, CEO and Confluence Scoops Up $28M).

CEO Sundi Sundaresh says AsiaTech and Hotung are "strategic investors" that he expects will be able to connect Candera with distributors in China and elsewhere in Asia. "I feel particularly good that we got this funding in a period when venture funding has continued to drop -- and in a space that has been crowded," he says. It was only another $2.5 mil, but heck, that's something.

There's certainly been an uptick in interest, at least among the financial crowd, in SAN management switches (which used to be called "virtualization" devices before that term was discarded as an overused buzzword). Late last year, two startups in this area were acquired: Brocade Communications Systems Inc. (Nasdaq: BRCD) bought Rhapsody Networks; and Sun Microsystems Inc. (Nasdaq: SUNW) bought Pirus Networks (see Brocade Scoops Up Rhapsody and Sun Beams on Pirus).

Candera's in-band device, like those developed by Pirus and Rhapsody, is designed to provide provisioning, monitoring, and other management features for heterogeneous SAN environments. Other features on tap include provisioning based on service-level agreements (SLAs) as well as charge-back mechanisms. Sundaresh says Candera is still on track to ship sometime in the second quarter, after launching its beta-testing cycle in December 2002.The startup says it now has nine Fortune 1000 companies in various stages of testing. Candera wouldn't give us the names of these beta testers but says they span across financial, healthcare, high-tech, and distribution industries. Also hammering on the beta unit is In-Q-Tel, the investment arm of the Central Intelligence Agency, which holds a small stake in Candera. In-Q-Tel is working with Candera to ensure that its switch fully meets government security requirements (see Spooks Give Candera a Hand).

For now, Candera still isn't willing to tip its hand about product details. Sundaresh outlines the vision of what the product is capable of -- it's a "purpose-built platform" able to manage multiple terabytes of storage from different vendors, connected to multiple servers running different OSs -- but he refuses to drill down on particulars.

The Milpitas, Calif.-based Candera, which has around 80 employees, expects to directly engage certain customers, but "the goal is to fulfill through OEMs and systems integrator partners," says Sundaresh. He notes that the startup has no signed deals on this front yet.

Adding to the perceived momentum in this space is the fact that Hewlett-Packard Co. (NYSE: HPQ) last month announced that it plans to use Brocade's Rhapsody platform to stitch together its virtualization strategy (see HP Picks Rhapsody).

But not everyone is sold on the concept of the ber-SAN switch -- including, notably, EMC Corp. (NYSE: EMC) president and CEO Joe Tucci."We aren't going to wake up one day and find all this intelligence in the switch. That's insane," he said in an interview with Byte and Switch yesterday at the company's launch of the Symmetrix DMX. "There will be some on the server, some in the network switch -- which is one piece of the networking layer -- and some on the array." (See EMC Soups Up Symm.)

That's just the point, Sundaresh says: The incumbent players want to preserve their existing business models, which are predicated on locking customers into their technology. "Every attempt so far [at storage virtualization] has been a half-hearted, marginal attempt," he says. "The bias for all of these players has been to preserve the status quo."

Still, all signs point to the immense challenge Candera will have convincing the leading sellers of storage and SAN switch gear -- EMC and its ilk -- to resell its box. We'll see how this shuffleboard match plays out.

Meanwhile, a panel of storage processor startup executives at last month's RBC Capital Markets conference generally agreed that, while intelligent SAN services switches such as Candera's would roll out this year, the segment wouldn't see meaningful volumes until 2004 [ed. note: if ever]. (See Smart SAN Switches: Not This Year