THE BLOG
12/19/2013 12:18 pm ET | Updated Feb 18, 2014

War Clouds

The consumer might not have a need to intimately understand what makes their technology function. If a movie plays without buffering or a game operates smoothly on a laptop, users tend to not care about processor speed or available memory. Marketers, though, have spent fortunes convincing businesses and consumers that larger disk drives and faster chips are the answer.

Until the cloud. And virtualization. And software as a service.

Programs and data are suddenly stored and operating on servers that collectively became known as the cloud and require little more than a machine that acts as a terminal. Enterprises are no longer compelled to have a huge stack of servers and install expensive software on site. The solution comes to them over the web.

And now there is another trend that investors are chasing, which goes beyond the cloud. Convergence of storage, networking, and processing, and operating them at great speed and functionality using software out of one server box has become a growth business for companies like Nutanix. Hardware in data centers no longer sits idle waiting for instructions to perform discrete functions. Using a solution like Nutanix, Scale, and SimpliVity can optimize the use of all computing power and only requires one box.

"There is clearly money being invested in the convergence trend," said Ross Barrett, venture investor and co-founder of VC Experts , a firm that analyzes private market equity capital investments. "In fact, Nutanix is the latest big player to file for a new round of investments with 13,957,445 shares of a new Series D Preferred stock price at $7.2885 per share. Those numbers would indicate they are about to take on possibly another $100 million in capital."

According to Barrett, documents obtained by his business intelligence experts show that Nutanix filed the certification for new money on Dec. 11, 2013. The new Series D Preferred shares have a 1.5x liquidation multiple and sit on the top of the liquidation stack, above the previous three rounds of preferred and common stock.

Previous speculation about the valuation of Nutanix had the company at about $800 million but the new round may push that number considerably higher and suggest an IPO. Nutanix has already raised $72 million in funding and claims to be growing at a rate of 40 percent per quarter. Total revenue is reported by the company to be $80 million annually.

SimpliVity and Scale have raised $58 and $41 million, respectively, for their convergence software plays, even as big dollars continue to pursue pure cloud storage businesses. Box recently confirmed a VC Experts report that it was raising $100 million and the industry continues to expect DropBox to have a huge investors' round in the near future. Regardless, Pure Storage raised $150 million in August of 2013 and Nimble Storage went public in early December 2013.

The private equity community clearly continues to believe in the data storage industry and there is no evidence to indicate its growth will dramatically slow as more consumers and businesses move most of their functions to wireless, handheld devices that don't have significant data capabilities and require cloud services for a full range of functions. The delivery of software and networking services via the cloud can be expected to dominate investments and revenue in the near term but startups using the single box server approach to handle virtualization of storage, software, and networking, will begin to consume some of the cloud company revenues currently being earned in the mid-sized range of enterprises.

Bipul Senha of Lightspeed Partners told Forbes that flash and virtualization offer speed and the ability to "pack multiple virtual machines on a single virtual machine. Combine that with the storage media change, which is a new thing called flash... of high speed write to the disk... is really changing the landscape. New systems have to be built from the ground up to leverage flash capacity and that's where all the innovation is happening."

Binha describes what's transpiring as an "earthquake." Convergence might be disruptive and generate a shake up. But at the moment investors are not feeling any tremors that make them afraid.