Tuesday, September 28, 2010

A Wize Move for IBM

Last month, we successfully exited our investment in Storwize through its sale to IBM. IBM had been working with Storwize for some time on technical validation and joint marketing initiatives, and gradually became convinced that Storwize was a critical enabling technology that could disrupt the entire storage segment and including their own product lines (why rent when you can own?).

This relatively quick exit scenario for BVP was completely in line with our original investment thesis that data reduction technologies, such as Storwize’s primary storage compression, will ultimately prevail due to the considerable economics at stake(I have another outstanding bet in Sepaton). Primary storage capacity optimization was the latest data reduction trend for the simple reason that it was the most challenging. The stringent performance requirements of primary storage and the mission critical applications that depend on it meant that a optimization solution could not introduce any latency or performance degradation. So when pundits told me during my due diligence process that Storwize’s claims were inconceivable and that several large companies had failed in the past attempts, I decided it was a risk worth taking with a crack Israeli team. Storwize was truly an “amazing” company, as just getting the product to work would be highly accretive to shareholders, due to the complexity of the problem, the elegance of the solution and the enormous end market. 

As an investor, one always has mixed feelings about selling a company. After years of investing money, time and energy, your involvement comes to a sudden and unceremonious halt as you promptly resign from the board and resume being a curious spectator. The entire Storwize team did an outstanding job in bringing the company to an inflection point, where shareholders had to decide between accepting an attractive acquisition offer or raising more capital to invest in growth and R&D. Storwize was in the pole position, had some incredible things under development, and had strong leadership across the board. 

But it is no secret that building an enterprise storage company into a big business is exceedingly difficult and expensive, especially from Israel with our distance from the customers and overindulgence in technology. If IT departments are naturally conservative, storage departments are among the most unadventurous of the lot, always favoring the large incumbent even if they do overcharge and overpromise. And contrary to what one might think, a deal like this with IBM doesn’t appear out of thin air due to hype or fear, but only after years of hard work to overcome skepticism and even disregard that it really works. Many still don’t and won’t believe, but that is the natural reaction to amazing companies until their product is considered mainstream.

Storage was never an easy market to penetrate, and for Storwize it would not be an exception, all of which led us to conclude that the acquisition offer made sense. I am sure the success of Storwize and IBM’s Israeli recent storage acquisition binge will entice more storage entrepreneurs and investors, and all I can say is that this is not for the faint of heart. 

My hat is off to the entire Storwize team including Ed Walsh, Gal Naor, Yoni Amit, Ori Bauer, Mary Henry, Steve Kenniston, and Tzahi Shahak, not to mention many others in sales, marketing, support, product and development. It was truly a team effort across geographies, disciplines and cultures, and I was proud to be an investor and board member. Thanks for the ride, and good luck to you all!

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