New investor Sequoia Capital led the round, which brings Netezza's total funding to date to $53 million. Also participating in the round were previous investors Battery Ventures, Charles River Ventures,Matrix Partners, and Orange Ventures.

Netezza's large cash injection indicates that the VC funding wheels are starting to turn again, and it's also a blow to naysayers of such "god box" approaches (see God is Dead and God Goes Down to the Crossroads). While wrapping multiple functionalities together in a huge appliance has sent more than one company spiraling into oblivion since the bubble burst a couple years ago, Framingham, Mass.-based Netezza has landed not only funding but also customers for its box.

"I think it's a proof point that there is interest out there," says IDC analyst Dan Vesset. "They're hitting a market where the data volumes are increasing substantially, and I think the investors are capitalizing on that."

The company has already bagged five paying customers for its appliance, including database marketing services firm Epsilon (see Netezza Breaks Up the Family). Other customers include telecommunications companies and financial services institutions.

"This time, the customer traction was the key issue," says Jit Saxena, the company's co-founder and CEO. "That's what got them excited... We've had a lot of great validation of our appliance." [Ed. note: $20 million based on five customer wins? These are some excitable VCs, apparently.]

Netezza expects the new funding, which was an up-round for the company, to bring it to profitability by the end of 2004. Saxena says the startup will use the cash to beef up its sales and marketing initiatives, enhance its partnerships, and add to headcount, The company currently employs 82 people, about 60 percent of whom are in R&D.

Its Performance Server 8000 series, which wraps server, storage, and database functionality into one appliance, started shipping in January this year (see Netezza Spawns a Monster). The appliance offers 10 to 40 times better performance for high-end data warehousing than comparable systems, at roughly half the price, Saxena claims.

"We have massive intelligence right next to the source of data," he says. "And we can lower the cost because we deploy the intelligence right at the source of data instead of wasting CPU cycles."

Because the disks and processing capability are coupled together, the appliance doesn't rely on expensive connectivity or host processing units. Instead, it can use off-the-shelf components, he says.

"The company customers I've talked to are very impressed with the performance of the appliance at that price," says IDC's Vesset.

Of course, Netezza isn't the only company going after customers in this space. The startup is competing with big players like IBM Corp. (NYSE: IBM - message board) and Teradata, a division of NCR Corp.

"There's always some skepticism when a new solution comes out," Vesset says. However, he points out, since the company's appliance uses off-the-shelf components and is based on open systems, it should have a solid chance to capture some of the market. "Besides very strong processing power, the fact that they've pulled everything together in one appliance decreases the maintenance cost," he says.

— Eugénie Larson, Senior Editor, Byte and Switch