VC report says most storage start-ups fail
VC report says most storage start-ups fail
The recent decline in the tech industry has not detracted venture capital firms from investing billions of dollars into the storage industry, but most of those investments will never reap financial rewards.
That is according to a new research report carried out by early-stage VC firm Crescendo Ventures on early-stage storage investing. The report, entitled "Venture Investing in the Storage Sector: The Cold, Hard Facts," analyses the performance of over 450 venture-backed storage start-ups that have been funded during the last 30 years.
The report shows that despite the tech bust, the storage sector remains better funded than most, with around US$3 billion (AUD$4.4 billion) invested in more than 150 storage projects in the last three years alone.
It also reveals that of all the start-ups that have received VC funding in the last 30 years, seven out of ten have failed, while of the three out of ten that actually survived, only 27 percent generated target returns.
"Our objective in conducting the study was to improve our ability to make good decisions when it came to identifying, evaluating, structuring and cultivating investments in the storage industry," said Jeff Hinck, a general partner at Crescendo. "What the report clearly demonstrates is that there are indeed a few important lessons that storage entrepreneurs and investors can take away from the industry's history that will allow them to better position themselves for future success."
In addition to dissecting the historical performance of venture-backed storage companies, the report also offers some prescriptive advice to entrepreneurs and venture investors active in the storage sector today.
"The storage sector has offered some terrific opportunities to venture investors during the last decade and will continue to be an important area fro innovation and value creation," said John Borchers, who is also a general partner at Crescendo. "But entrepreneurs, management teams and investors interested in building the next generation of storage success stories face a different world. Overcapitalisation, channel concentration, accelerating commoditisation and a blurring of the traditional definition of 'storage technology' means that both entrepreneurs and early-stage investors need to thing more critically about how they identify and execute on opportunities in the segment."
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