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Netezza gets tera-size $20M round for its
appliance |
| 07/28/2003 08:51 AM |
| By Jeff
Miller |
Whatever the future brings for
Framingham-based Netezza Corp., no one can say that the company
aimed too low.
“It’s clear to us and to investors that we’re
building a company on the East Coast that could have a substantial
size and value over the next few years,” said Jit Saxena, Netezza’s
chief executive and co-founder.
It had better.
The
venture investors who ponied up a few weeks ago for Netezza’s $20
million C round expect big things from the terascale data appliance
maker.
The last time Netezza raised money, four venture
capital firms angled to get into its $30 million B round, which
closed in January 2002. This time around there were more than four
firms competing to invest, and it took less than two months to
close, Saxena said.
California-based Sequoia Capital won the
competition. It invested alongside prior investors Matrix Partners,
Charles River Ventures, Battery Ventures and Orange
Ventures.
The company saw a modest increase in its valuation
this round prior to the new money coming in, said Ollie Curme, a
general partner at Battery, which is unusual for C rounds these
days.
But with $53 million in total money raised, Curme said,
the company’s valuation is very high, though neither investors nor
executives would release an exact figure.
“They’ve sold to
five customers, so it’s still early going on the sale side,” Curme
said. “And yet it’s priced at a level that’s not too far from a lot
of IPOs these days.”
VCs generally look for deals that will
return at least 10 times their money. Assuming that 20 percent of
the company is reserved for founders and employees, which is a
conservative figure for a company whose valuation has increased with
every round, Netezza would have to exit at more than $660 million to
generate that sort of return.
If the founders and employees
own more than 20 percent of the company, the exit value would have
to be even higher.
So then, what’s so special about
Netezza?
“Netezza could define a whole new category and
become a huge company,” Curme said. “There aren’t many opportunities
like that. Most startups are product refinements.”
Netezza
has developed an integrated, standards-compliant appliance that uses
sophisticated software, commodity components, commodity processors,
Linux and an open source database to process massive amounts of data
each second.
“You get incredible performance for the price
compared to competitors,” said Dan Vesset, a data warehousing and
information access analyst at International Data Corp. “I was
talking to one of their clients who said that it took them 23 hours
to do queries before, and that’s not acceptable. With Netezza, it
was substantially faster.”
For example, at least two of
Netezza’s customers are in the wireless and wireline
telecommunications industry, and they use the company’s gear to
process revenue and billing data.
“These companies have the
problem of billions of calls, compiling them, and getting a good
handle on their revenue assurance issues,” Saxena said. “It’s a big
data problem because not only is it a large amount of data, but it’s
changing rapidly.”
Netezza also has customers in the
financial services arena. The company’s products list from about
$600,000 to more than $2.5 million for its highest-end systems.
But Netezza still faces substantial market challenges, with
IT spending down and large companies reluctant to buy such an
expensive, important product from a startup. Plus, Netezza is
competing against heavyweights such as Oracle, IBM, Sybase and, most
important, Ohio-based Teradata, a division of NCR Corp.
“The
only equivalent solution out there today is from Teradata,” said
Vesset at IDC.
Nevertheless, Vesset said, no one can
currently match Netezza’s price performance. And though Vesset
estimates the market for high-end products such as Netezza’s is only
about $350 million, it’s definitely growing.
“Their biggest
challenge,” Vesset said, “is finding customers who have tried to
solve this big data management problem on their own and have failed.
Because if you’re talking to people who haven’t tried to do it yet,
they won’t understand the benefits.” |
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