Most Storage Startups Flop

Most Storage Startups Flop

And the bad news for VCs investing in storage doesn’t stop there. In order for a VC to achieve its target of at least tripling its investment in a company, the company has to be worth about 10 times the total funding it has received when it enters the public sphere. But of the three out of 10 companies that actually survive, the report shows that only 27 percent achieve a return of 10 times the investment, while 34 percent are worth less than three times the total investment in them.

So, how can VCs spot the winners in that sea of losers? John Borchers, a partner at Crescendo and co-author of the report, suggests that investors take a hard look at what storage segment a company is playing in.

“There’s an unintentional mis-gearing in the way different storage companies are capitalized,” he says, pointing out that, while the amounts invested in different segments are about the same, the number of companies that actually survive in the different segments varies greatly.

In addition, the report shows that investors should be wary of funding companies offering technologies based on evolving or not yet existent standards. “There’s a lot of naiveté surrounding how long it takes for standards to be adopted,” Borchers says. “Often, companies think the standard’s just two to three years away, but in almost every case over the past 30 years, it has taken six to seven years.”