Startup with all-star backers aims to disrupt storage market

January 25, 2010: 7:00 AM ET

Coraid founder Brantley Coile has a history of developing game-changing enterprise technology. Photo: Coraid.

Picture this: A brilliant engineer in a Georgia college town invents a cheaper way to do high-end storage. For nearly five years he and a small team quietly sell systems to demanding customers like the Nathional Institues of Health, which uses the technology for the Human Genome Project.

Eventually he realizes he can't run the company on a shoestring anymore and calls an old friend, who consults a legendary investor, who assembles an all-star team of executives and advisers.

It's a little hard to believe, but that's Coraid's story. Today the 10-year-old startup is effectively relaunching with a $10 million Series-A round of funding from Allegis Capital and Azure Capital Partners. It's also announcing an impressive new roster of executives and backers including Chairman Audrey MacLean, former CEO of Adaptive and an investor in several successful startups; CEO Kevin Brown, a storage and networking veteran who sold his last startup to Microsoft (MSFT) in 2008; and advisers Mark Leslie, former CEO of Veritas; and Charlie Giancarlo, once the head of development at Cisco (CSCO).

I grabbed lunch with Brown recently near Coraid's offices in Redwood City to get the lowdown on the startup's big move. He told me he had been hunting for a new job after selling virtualization startup Kidaro to Microsoft, and a venture capitalist friend recommended Coraid. Brown soon learned that Coraid's technology had been developed by Brantley Coile, a former Cisco engineer who had come up with game-changing products like the PIX Firewall and Localdirector. After he saw what Coraid's products could do, and talked to customers, he was hooked.

"What Dell did to servers," he says, "we're looking to do to storage."

Bold words. For those who don't remember the server market in the 1990s, here's what that means: Coraid might just commoditize storage boxes, ding competitors' profit margins, and laugh all the way to the bank. Coraid's fresh executive team believes that's possible because they have a way of rigging together faster, cheaper storage area networks using off-the-shelf parts.

The method, which was invented by Coraid's founder, is called ATA over Ethernet, or AoE. Because it's designed to be simple, AoE has a few weaknesses compared to more established storage networking technologies like Fibre Channel over Ethernet and iSCSI – it doesn't support the same kinds of encryption and access options. But it has advantages, too. Coraid says AoE is 30% faster than Fibre Channel and twice as fast as iSCSI. That performance and the low price have helped Coraid to establish itself selling its EtherDrive, which includes firmware that manages the flow and storage of information.

If Brown is right about Coraid's potential, it could one day cause headaches for storage giants like EMC (EMC) and Netapp (NTAP), and for others like Hewlett-Packard (HPQ) and Dell (DELL) that lately have made acquisitions to build out their storage arsenals. Normally a startup like Coraid would be a mere annoyance for such big companies; but given Coraid's pedigree and client list, it might attract more attention.

Given the economy and the boom in cloud computing, the time is ripe for a disruptive entry in the $20 billion enterprise storage market. In tough times, investment money often flows to startups that try to solve deep technology problems for big business. And with so much attention on the cloud's potential to save companies money through technologies like virtualization, customers could be open to unconventional ideas. Coraid, at least, is banking on it.

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