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Xiotech plots IPO as encore in 2000
Data storage firm to add $20 million to venture capital haul
Adam Weintraub Staff Reporter
Xiotech Corp. of Eden Prairie already has $18 million in venture capital on its balance sheets and it's getting ready to lock in $20 million more.
That's a whopping big chunk of confidence, with venture firms from the Twin Cities, both U.S. coasts and even Japan voting with their checkbooks. What do you do for an encore?
"We're getting ready for the IPO early next year," said president and CEO Phil Soran.
Xiotech is a pioneer in the field of "Storage Area Networks" (SAN), a concept that distributes data storage over a number of computer disk drives, tape units and other data storage devices. Just as a "Local Area Network" increases the power of individual computers by letting them share data and resources with each other through a server, a SAN makes data storage and retrieval faster, more flexible, and more powerful.
The firm has annual revenues in the low eight figures and is seeing quarter-over-quarter growth in the range of 70 percent, Soran said. Company officials are in the final stages of arranging a $20 million round of venture financing and have begun talks with a number of potential underwriters for an initial public offering of stock.
Soran would not discuss the size of the planned IPO, saying it was too early and could change depending on the market.
But valuations for data storage stocks are on the rise, said Frank McEvoy, a research analyst in technology at U.S. Bancorp Piper Jaffray in Minneapolis.
"That's one of the hottest segments in technology right now," McEvoy said. "The underlying driver is the Internet and the need to handle all that data."
McEvoy wouldn't comment on Xiotech specifically, but he said that stocks in the same industry have been trading at more than 10 times their projected 1999 revenues, and as much as 30 times that figure. "They're seeing very, very high multiples."
A multiple of 10 times projected revenues for Xiotech would give a market capitalization in excess of $100 million.
Xiotech's flagship product is a centralized storage system called the Magnitude. It can hold up to 64 disk drives for total storage of 3 terabytes of data, and work with multiple servers running different operating systems.
In recent weeks, the company's new executive vice president for marketing, Dick Blaschke, has been blitzing the trade press and analysts to introduce its Real-time Data Intelligence (REDI) storage architecture and a variety of related new software products that make data management more convenient. It's the REDI software that makes it easy for system operators to upgrade, back up data and perform other tasks without shutting down their systems, Blaschke said.
"The key to this thing is utilization," he said. The software architecture enables customers to perform tasks with a few keystrokes that would take hours or a service call to handle with other systems, said Blaschke, who was once vice president of product marketing for EMC Corp. of Hopkinton, Mass. "These guys didn't get me to move here from Las Cruces, N.M., because they had some piece of hardware that handles spinning round brown disks."
At the moment, you need to buy that hardware box to get the software functionality, said Michael Casey, research director for Gartner Group Inc. in San Jose, Calif. "What they've done is a very interesting software architecture," Casey said. "The big win for them would be to see that software adopted" or licensed by a major original equipment manufacturer. "That's the big value," but with larger competitors preparing their own SAN products "it'll be an interesting time to be in business."
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