As Cisco’s acquisition of Tail-f shows, SDN startups are in demand. Valuations are growing, capital is flowing, deals are happening, and even customer revenue is starting to appear. But what distinguishes the best startups from the middling ones? And who’s most likely to be acquired?
Let’s take a look at the leaders of the SDN startup pack. I spent about six months reviewing the entire SDN landscape, including the most visible startups, in my report, “SDN Revolution: An Ecosystem Report,” which is available now. In our list of Top Ten Startups, we rank the strongest companies. Already one of them, Tail-f, has been acquired. Who’s Next?
Cumulus comes up weekly in the latest acquisition rumors. The obvious buyers would be VMware or Dell. Cumulus makes a proprietary flavor of the Linux operating system (OS) that is optimized for networking and SDN.
One tricky part of a Cumulus deal? One of its attractions of Cumulus is it provides a neutral, “Switzerland” type OS. If it were acquired, the acquirer might want to turn the OS into it’s own “special sauce,” which would immediately diminish the desirability of other hardware companies to use the Cumulus OS. In other words, as soon as it gets bought, Cumulus’ product will be less appealing to others. Therefore, I think Cumulus should roll the dice. It should hold out for IPO. It can create more value as a OS-provider to everybody.
Plexxi is the trickiest of the bunch, because it’s got a unique hardware-and-software combination in an optical top-of-rack switch targeted at the data center. I think of it as a next-generation Arista.
The most obvious pursuer of data-center switches is Cisco. But given Cisco’s investment in Insieme and its Nexus 9000 platform, it’s hard to imagine Cisco making another big data-center switching play. Too much has already gone into the Nexus 9000, and integration of Plexxi would be challenging. But Plexxi might make sense to somebody like Juniper Networks, or even an optical vendor such as Ciena. In fact, I think Ciena makes a lot of sense, because Plexxi would give Ciena a data-center switching strategy.
Pluribus makes a cool product. It provides the software tools to build a massively scaleable server box with Layer 2 switching capabilities, including analytics. This would be attractive to many big server players, including somebody like HP or IBM, giving them an instant “SDN server story.” What I think makes Pluribus strong is that it’s already carved out an impressive lineup of partners, including Super Micro, Tibco, and Oracle. So Pluribus is pretty well positioned to go out on its own for a while, building revenue. This year will be a scale-out year for Pluribus so it will be interesting to watch how this develops.
Speaking of Oracle, they would also be a leading candidate to buy a company such as Pluribus. Oracle the dark-horse tech giant to watch in SDN. Oracle has slowly assembling a virtualization and SDN strategy, it has bought many telecommunications software tools, and it already has many parts of the SDN stack.
2014 will be a crucial year for many of these startups, as sources at many of the companies point out that it’s a “funding year,” in which they go for series B or C rounds and start to bulk up, as their products come to market.
What are all these folks worth? In the SDN Revolution report, I pegged the Tail-f valuation of $100-$200M and they got taken out at $175M, which isn’t bad. But the rest of the “Top five,” including Cumulus, Plexxi, Pluribus, and a company such as Big Switch, which already has a lot of money into it, are looking for exits at $250M plus. In my research, Cumulus still comes out on top, with an estimated valuation at $400M or greater. But I think the price at which Cumulus considers a deal is $500M or higher.
This makes the stakes for the potential acquirers even more important. Because many of these startups are at the crucial juncture of just starting to ramp revenue and bring their product to market, it’s a natural time for decision-making. That’s why I think 2014 will continue to yield many M&A deals.
Read about the details of the SDN ecosystem in “SDN Revolution: An Ecosystem,” a comprehensive, 30-page industry review that includes detailed information about more 24 startups, the position of leading incumbents, and a ranking of the top companies. It is available now from the Rayno Report for $899.