1Mby1M Deal Radar: Virsto, Sunnyvale, CA

As the world of storage virtualization continues to change, old problems need new solutions. Quite a few companies have tried to answer the old questions in new ways; some have succeeded.

Virsto Software provides innovative storage virtualization solutions to address the growing need for cost-effective and efficient storage for virtual servers and desktops. It delivers the only 100% software virtual-machine (VM) storage solution that companies worldwide use to achieve breakthrough increases in performance, reduce storage capital and operating costs, and streamline provisioning and data management for virtual computing. The founders believe that the unintended consequences of server virtualization on storage infrastructure is a multi-billion-dollar problem and conceived Virsto Software as a means to deliver a new storage architecture that is optimized for server virtualization’s unique characteristics. Virsto’s vision is to do for storage what the hypervisor did for servers: fundamentally change the way IT assets are used to deliver radical return on investment.

Mark Davis has been involved in the networked storage and virtualization revolution since Virsto’s inception. He launched the first Fibre Channel disk array in 1994 and was instrumental in taking Sun Microsystems from a non-player to the largest Unix storage vendor within five years. After a one-year stint as vice-president of marketing at $2 billion storage vendor, StorageTek, Davis repositioned ConvergeNet in 1999 as the inventor of SAN-based storage virtualization, which resulted in a $340 million acquisition by Dell. After playing an instrumental role in the IPO of Evolve Software, Davis returned to the storage industry, where he worked on multiple virtualization projects. From 2005 to 2006, he served as the CEO of storage resource management vendor, Creekpath Systems where he engineered its acquisition by Opsware (now HP).

Davis, chief technical officer, Alex Miroshnichenko, and vice-president of engineering, Serge Pashenkov, established Virsto in 2007. They brought to bear their combined experience in storage, file systems and virtualization to solve the fundamental disconnect of server virtualization and existing storage architectures. Miroshnichenko has a knack for creating innovation in virtualization and storage dates. In the early 1990s, he joined Veritas Software. During his 12 years there, he served as a technologist, at the core of major innovations ranging from the Veritas File System and Database Edition for Oracle to the industry’s first viable storage software appliance technology, and early explorations of a then-nascent virtualization technology called Xen. In 2007, Miroshnichenko’s experience gave him insight into the problems of storage management under virtual servers, which led him to co-found Virsto.

Pashenkov, who also innovated at Veritas, has, over the past two decades, built software development teams from the ground up and invented advanced technology to deliver the simplest solutions. At PowerFile, for example, he hired the team, led the design and managed delivery of three major releases of system software for a data archive appliance. His technology teams delivered a patented fault-tolerant software platform, a content-aware storage system and new levels of application scalability for modular computing. While at Veritas, he ran engineering for the industry’s first software-only, network attached storage platform. Pashenkov is a veteran of several startups in the storage, networking and telephony industries; Virsto is his first as a co-founder.

Virsto’s management team is now complete, with veterans from the leading vendors in adjacent market spaces where the company aims to deliver innovative solutions, including Sun, Veritas, VMware, XenSource and Data Domain.

At the time of Virsto’s establishment, the server virtualization revolution was in full swing. Virtualization itself topped the priority lists of CIOs. The approach enjoyed rapid adoption by IT organizations in test and development as well as production worldwide. The leading hypervisor vendors, VMware, Microsoft and Citrix, were focused on accelerating the adoption of server virtualization but were not focused on the downstream affect on storage infrastructure that occurs when IT organizations adopt server virtualization.

Storage array vendors, including EMC, NetApp, IBM, HP, Fujitsu and Hitatchi, have not changed the fundamental storage architecture in over 20 years. The initial approach to “storage virtualization” offered by traditional storage vendors over the past 10 years has relied on a storage architecture that was conceived and executed before server virtualization for x86 systems was conceived. All of the competitive approaches delivering storage virtualization rely on proprietary storage hardware.

The market dynamics have changed since 2007 as several new entrants have emerged to solve the storage issues created by widespread adoption of server virtualization. Atlantis Computing, Tintri, Sanbolic and Datacore offer variations on storage appliances, many based on SSD, to deliver improved storage performance in virtualized environments. Virsto delivers the only software-only, VM-aware, hypervisor-based storage virtualization solution. Unlike appliance and array vendors, Virsto supports multiple hypervisors as well as heterogeneous block-based storage. The software installs directly into existing hypervisor and management environments, delivering immediate performance acceleration, increased capacity utilization and accelerated storage provisioning for VMs.

While Virsto delivers benefits to any organization undertaking a virtualization initiative, the company prioritizes its GTM efforts on enterprise VDI initiatives, private cloud initiatives, public cloud hosting companies, and enterprise test and development environments. Virsto found early success in SMB accounts grappling with the challenges of storage in virtualized environments on the hyper-v platform. By partnering closely with Microsoft, Virsto delivered significant benefits to IT organizations that had adopted hyper-v. The company enjoyed considerable success in enterprise VDI initiatives, where the cost of storage without Virsto made early VDI proof-of-concept sizing and cost per virtual desktop unattractive.

According to Gartner, there were 5 million virtualized servers in 2010. At Virsto’s price of $2,500 a host, that is a $12.5 billion addressable market. TAM for the storage virtualization market is estimated at $2 billion: 5,000 petabytes (PB) of storage per year, 40% of which are at the high end at a cost of $1,000 per terabyte (TB)

The company has raised thus far: a $1.0 million seed round from Canaan Partners in 2008; a $7.0 million Series A led by August Capital in  June 2009; and a $12 million Series B led by InterWest Partners, along with Canaan and August, in June 2011. The company has more than 40 customers in SMB accounts such as Millard Lumber, Sienna and West GI; hosting companies such as SSI, Inc.; large public enterprises, including Mako Surgical; and Fortune 1000 companies. Virsto revenue has grown more than 100%, quarter over quarter, since it launched in February  2010. It closed more revenue and customers in Q1 than in the remaining three quarters of that year combined. The company’s current revenue is approaching $3 million.

For Virsto VDI and Virsto VSI, pricing is $2,800 per physical host with no limit on number of VMs or cores. Each license includes one TB of “virtual storage capacity.” For incremental virtual storage capacity, Virsto charges $1,000/TB.  For example, if an IT organization had 10 terabytes of physical storage and five virtualized physical hosts, the pricing would be:

5 licenses @ $2,800 (1 per host × 5)
5 licenses @ $1,000 for an additional 5 TB of logical storage

Virsto plans to support multiple hypervisors, so the company will partner closely with Microsoft, VMware and Citrix. The company has been approached by storage array vendors to embed Virsto’s high performance, scalable snapshot and cloning attributes into new differentiated storage arrays with an OEM route to market; however, the company will continue to build the direct and channel organizations to leverage the market demand.

Because of the unique, software-based approach to solving this difficult technical problem, the founders believe that both hypervisor vendors, as well as storage vendors, will be interested in Virsto’s solution, which presents multiple options for potential exits.

Right now, the team is actively working to scale its GTM functions to ramp revenues and deliver against aggressive internal revenue targets but believes in keeping all options open.

This segment is a part in the series : 1Mby1M Deal Radar