Xiotech scores big with venture capitalists
Big names pony up $10M
Henry Breimhurst Staff Reporter
Sometimes an untidy stack of floppy disks just isn't the best way to store a company's data. For those cases, Xiotech Corp. has developed a central storage unit that helps eliminate a common bottleneck in network storage.
Now a who's who list of local venture capitalists (along with a couple from the coasts) has shown its support, to the tune of $10.1 million.
Eden Prairie-based Xiotech makes a centralized storage system called Magnitude that can serve as storage for up to eight servers. They are not cheap, ranging from $65,000 to $150,000, but Xiotech president and CEO Philip Soran said that the efficiency and speed of the Magnitude system should make it a popular choice.
However, it is the rare technology that sells itself. Xiotech intends to use the $10.1 million to beef up its marketing and sales presence. "There are eight venture capitalists in the deal, and they're really top-drawer names," said Soran. "For this size of opportunity, you have to have the capital." Local firms who invested in this round include Gideon Hixon Ventures, IAI Ventures, Minnesota Management Partners and St. Paul Venture Capital.
Ralph Weinberger, a partner with the local office of PricewaterhouseCoopers, said that having eight venture capitalists work together is both unusual and well above the average. "In today's environment, two or three or four ... is more typical." As for the size of the investment, "it certainly speaks well of the company and its performance to date." Xiotech said its latest financing is the second-largest round of venture capital for a Minnesota company since 1994.
Mac Lewis, managing partner of Wayzata-based Minnesota Management Partners and a Xiotech director, said that the company is one of the best-run he had seen. "They delivered a product in 18 months, within a month of plan." Beyond the additional activity the financing will allow for, Lewis said there are other benefits to the size of the latest round. "Having top-tier venture capitalists gives them credibility."
"There is potential for explosive growth," said Mike Gorman, general partner with Bloomington-based St. Paul Venture Capital. Network storage "is not a small-scale phenomena. I think you're talking about a fundamental change in the network."
A Magnitude storage unit is a box about five feet tall with a footprint of roughly four square feet capable of storing a terabyte (1,000 gigabytes) of information. A company can hook up the servers from, say, the research department, sales department, administration or any other division with high-speed fiber connections, and all the data from all the servers will be stored on disks in the Magnitude unit. This will allow the data to be retrieved much more quickly than from the servers themselves.
"The technology of computers has been improving over time," said Lewis. "The speed of disk drives has improved, but not as fast." Xiotech likes to call this the bottleneck: Fast processors at the workstation can handle data quickly, and fiber optics can move information at lightning speed. But if it takes a long time to call up information, efficiency is lost.
Data is still retrieved from a disk spinning at a certain speed, so it is not easy to make the process faster with current technology. But Xiotech uses software that allows data to be spread out among several disks within the Magnitude unit. If a user were retrieving a huge data file, it might take a while for the information to be read from one drive. But if that file is spread out on eight disks, and all eight disks read simultaneously, the entire file can be retrieved in one-eighth the time.
An added bonus, Soran said, is that by putting all the data in one location, "one administrator can manage five to eight times the data. And these people are hard to hire." The architecture lets the servers support each other: If one breaks down, another server can pull up the same data until the broken server is repaired. With a mirroring Magnitude server in another location, the company can build a lot of redundancy -- and reliability -- into the network.
The concept of the "storage area network," where data is separated from the server to make it accessible to more people, has been growing in popularity in recent years. This trend will also help Xiotech grow, supporters claim. (Soran said that while acquisitions aren't unusual in the high-tech market, his company has no immediate plans to acquire or be acquired.)
The company, founded in 1995, has installed product and is generating revenue, and hopes to now build momentum and size. Because it uses existing technology in a new way, it is hoped that it will be readily accepted. "It's revolutionary in the manner in which it is driving performance," said Gorman. "But it's not like we're creating a whole new technology."
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