Pivot3 pivots, buys NexGen

Analysis In a major pivot, all-flash and hybrid array startup NexGen is merging with hyper-converged infrastructure appliance software startup Pivot3 in a cash-free stock merger.

When startups merge that’s generally a sign that the original mission is failing and/or the backing VCS are getting nervous.

What makes this more surprising is that NexGen is just one year old in its latest spun-out-of-SanDisk incarnation; its exec team could well be gutted by this turn of events, as independence is denied to them.

The financial terms are not being disclosed so it will be some number or portion of Pivot3 shares for some number or portion of NexGen shares, with the ratios not being revealed.

Founding and funding histories

Both companies have eventful backgrounds. Here’s NexGen’s

• 2010 - founded by CEO John Spiers, who co-founded LeftHand Networks, and CTO Kelly Long
• 2010 - December - $2m A-round
• 2011 - November - $10m B-round
• 2012 - n5 hybrid array launched using Fusion-io PCIe flash cards
• 2013 - bought by Fusion-io for $119m
• 2014 - SanDisk bought Fusion-io for $1.1bn
• 2015 - January - spun out by SanDisk
• 2016 - January - acquired by Pivot3

The VC backers were Access Venture Partners, Grotech Ventures and Next World Capital.

Pivot3’s history is more straightforward in terms of ownership but convoluted in funding and CEO terms;

• 2002 - founded by Lee Caswell and CTO Bob Galloway to build converged server, storage and network system
• 2005 - $9mn B-round; Lee Caswell becomes CEO
• 2006 - $1.1m venture funding
• 2007 - $7.34m in B-round; Lee Caswell exits CEO role to be CMO
• 2007 - May - Bob Fernander becomes CEO
• 2008 - $24m C-round
• 2009 - $2m top up
• 2010 - $4m and $25m 2-part D-round; Lee Caswell leaves
• 2011 - November - Rich Bravman appointed CEO, replacing Bob Fernander
• 2012 - $23m funding
• 2013 - $14m funding; Rich Bravman leaves CEO slot in April
• 2013 - November - Ex-Perot exec amd Pivot3 chairman Ron Nash becomes CEO
• 2014 - $2m and $12m in 2-part E-round
• 2015 - $45m from Argonaut Private Equity and some existing investors
• 2016 - buys NexGen

The VCs involved are InterWest Partners, Mesirow Financial, Focus Ventures, Northleaf Capital Partners, Lightspeed, Samsung Ventures, IX, Silver Creek, the Wilson Sonsini Goodrich & Rosati investment fund, S3 Ventures and Argonaut Private Equity. Ron Nash had a partner and Exec-in-Residence role at InterWest Partners from May 2000 to the end of 2014.

Funding fandango

What a funding history mess; 13 funding rounds or events in 13 years, to reach a total of $192.44m funding. There have been four CEOs in that time. After 13 years it seems the VCs have pushed Pivot3 into acquiring NexGen to pick up its QoS software smarts and all-flash/hybrid array products.

The latest $45m will be used to invest in sales and marketing, recruit top talent across multiple job functions in various geographies globally and expand on its channel partner strategy. Pivot3 will also focus on using “advanced analytics designed to extract new insights from massive unstructured video data sets for business intelligence and enhanced security.”

According to an industry source close to events: “John (Spiers)would have liked to keep Nexgen to himself but needed $ and the $ folks held the shotgun at the wedding.” He believes NexGen was definitely looking for a funding round and that “someone with a good size piece of Pivot3 made an offer contingent on the merger.”

So NexGen took it because it couldn’t get funding elsewhere? That’s the supposition.

He said: “Pivot3 is in the middle of their own transition from video surveillance to VDI and now general purpose HCI (hyper-converged infrastructure).”

Its hyper-convergence means the various nodes are clustered and can access each other’s storage in a virtual SAN. Pivot3 says its Scalar Erasure Coding unifies storage across the nodes, providing up to 94 per cent usable capacity, and the system has a single but virtual spare drive for the cluster. Data is protected within the cluster and needs no replication.

Pivot3 progress

In 2013 Pivot3 had passed the 600 customer count for its vSTAC converged storage and compute appliances, and was focusing on the video surveillance and VDI markets. It then moved into hyper-converged infrastructure and has seen Nutanix and Simplivity become the leaders there. In February 2015 it had 1,600 customers. Today there are some 2,000 customers in 53 countries.

That's good recent growth and a decent total number but, overall, not that impressive after 13 years in business, and self-evidently not enough to warrant an IPO.

Pivit3 claims to be the inventor of software-defined storage, an almost risible claim; DataCore, for example, was founded in 1998 and FalconStor in 2000.

What will Pivot3 do with NexGen? It intends to market and enhance all current and planned NexGen products. We might expect Pivot3 to take advantage of NexGen quality of service (QoS) capabilities in its own products.

Pivio3 says it “now provides the most extensive suite of HCI solutions available in the market.”

Is that enough to overcome the Nutanix-Simplivity duo and the chasing VMware/EMC juggernaught? That’s a big ask.

It claims it is “effectively enabling the first generation of software-defined data centres,” which suggests its marketing department is no stranger to bombast.

Can Pivot3, after 13 years, leverage its NexGen asset and become a self-sustaining independent business? An overall 5:1 payout for its investors suggests it needs a $1bn valuation. Again, that seems a big ask. Let’s hope it succeeds. ®