Innovating Web 2.0 Storage: Fabrik CEO Mike Cordano (Part 6)

SM: At what point did you launch the external drive business? You are now building two parallel businesses that will converge at some point. What is that evolution?

MC: We spent a lot of 2006 looking for potential alternatives. We had the option to build it organically, but that is a capital intensive activity. Our primary path was to look for a reasonable and interesting acquisition target. We looked at a lot of companies and settled on SimpleTech. For us it was a perfect target. It was US only so it limited our scope. It had the beginnings of nice channel relationships. It had a lot of seeds that were valuable and they had an initial relationship with Pininfarina.

We realized if we took them into our model we could expand the channel and product portfolio rapidly. Our objective was scale. We were just trying to build market share into the model so we could then take advantage of the operational efficiencies that come with that.

SM: How big was SimpleTech?

MC: We got three product lines: storage, flash and DRAM. Storage was the most important to us. It was less than $10 million a quarter in revenue. Within four quarters we had it over $40 million a quarter; we were able to grow it rapidly by focusing on channel line and product line expansions.

SM: What did you pay for the acquisition?

MC: We paid about $43 million. The deal structure was $10 million over working capital. It was a fairly modest investment for us given the fact we were able to get such initial trajectory into the market.

SM: Why did they want to sell?

MC: They had two different companies. The SimpleTech division was very consumer-oriented, and they had an enterprise-oriented solid state business that they wanted to focus on. They had to make a strategic choice, which is what drove them to consider a sale.

SM: How did you find them?

MC: We identified them through a corporate development process. It came to our attention they were looking to sell, so we engaged them through their process.

SM: Help me understand how you have navigated the financial engineering?

MC: The Series A was what you would normally expect. We raised $4 million from ComVentures as a small software startup. That was very straightforward. It got us through the 15-month experiment phase. We then did a Series B and a Series C. Those two rounds together allowed us to acquire SimpleTech.

SM: Did you identify SimpleTech and then raise the money to execute the deal?

MC: That is correct. We actually did a Series D not long after the acquisition of SimpleTech to bring in an investor, 3i, out of Europe with the idea that we would make a strategic move into Europe. We brought them in to work with us on that, so we will make additional investments into expanding our US platform into Europe and the Middle East. That will happen over the next few months.

This segment is part 6 in the series : Innovating Web 2.0 Storage: Fabrik CEO Mike Cordano
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