High-powered U.S.-Israeli Data Storage Firm Capitalizes on Binational Cross-pollination

Primary Data, which grew out of local Tonian Systems, is raising $60 million from major Silicon Valley VC funds.

Over the past decade Israel has chalked up a number of success stories in the field of data storage, capped by acquisitions by leading international players, on its way to becoming a global force in the industry.

In the past few months, quietly and away of the limelight, another company is gearing up to be next in line. But this time the people behind it have proven experience in the field and intend to build it into a large, independent enterprise; they say their goal is a $10 billion company. The firm, Primary Data, is now raising $60 million from some of Silicon Valley’s leading venture capital funds as a step towards attaining this ambitious goal.

The company’s story actually begins with the birth of Tonian Systems, an Israeli startup focused on developing storage software founded by Adam Kaplan and Sharon Azulai in 2011. Kaplan, CEO at the time, explained that Tonian was developing a unified solution to the disorder in organizations brought about by combining traditional storage techniques with virtualization.

Cedar Fund came on board with $1 million in seed funding at the outset, following up with another $5 million investment together with Charles River Ventures in October 2011. The fund has chaperoned the company ever since and taken part in the plot twist that transformed it into Primary Data.

Meanwhile, in the United States, another data storage company, Fusion-io, had reached the stage of going public. A manufacturer of flash memories, Fusion-io was established in 2005 and floated at a value of $1.4 billion in July 2011. Its main customer at the time was Facebook. The company’s value reached a peak of $4.25 billion in November 2011 but since then has plunged by more than 70%. David Flynn and Rick White, the company’s founders, raised a media flurry last May when they decided to leave.

Israeli engineering plus American management

In an interview with TheMarker two weeks ago during a visit to Israel, Flynn said that after leaving Fusion-io he began looking in other directions. He had gotten to know the management team at Tonian two years earlier in Silicon Valley when Fusion-io collaborated with the startup by providing its equipment.

Tonian had reached a crossroads, giving rise to Primary Data, which combines Tonian’s Israeli technology with Flynn and White’s rich entrepreneurial experience in data storage. “Tonian is part of Primary Data,” explains Flynn. “It’s a new company with two years of development behind it. The core comes from Israel.”

“The visions of Tonian and Primary Data are similar,” says Benny Halevy, one of Tonian’s founders and now serving as Primary Data’s chief technology officer. “With the new team we have gunned up management and augmented the value proposition. We now have a larger vision than we did before.”

Following up on initial talks between the sides, Flynn arrived for a visit in Israel. Ron Asher, who was managing a team of 500 engineers at IBM Israel at the time, was brought in as Primary Data’s vice president for engineering. “I heard that he’d fixed XIV and I had to meet him before I left,” says Flynn. “It’s really amazing how much storage expertise, talent and engineers there are here in Israel. We have the epicenter of our engineering here. Of course sales and marketing will be more in the U.S., but the core of the company will be here.”

Since joining forces, Primary Data – formerly Tonian – has doubled its operations in Israel and grown from 20 engineers to 40, and intends to employ over 100 engineers here within a year.

The company represents a special opportunity for engineers in Israel to work with the best talents, according to Asher, and is currently looking for people with solid experience. Power Data later intends to recruit graduates fresh out of university. During the next two years, while the product is under development, most of the company’s staff will be concentrated in Israel. It is currently located in Herzliya but will shortly be moving to new offices near the Azrieli Towers in Tel Aviv.

“Most storage companies and many technology companies in Israel are built just to be sold to some bigger company,” says Flynn. “I built a very big company with Fusion-io and I’m here to build an even bigger self-standing company. I took Fusion-io public and ran it for two years as a public company, and I think Primary Data is a bigger opportunity. We’re very excited about building a self-standing public company.”

Last month, even before bringing a product to market, Primary Data succeeded in raising $50 million from leading VC firms in Silicon Valley and around the world, thanks largely to the impressive resumes of its founders. One investor, Accel Partners, already knew Flynn through its investment in Fusion-io. It was an investor in Diligent Technologies before its acquisition brought Asher to IBM.

Primary Data and the VC firms haven’t revealed the value underpinning the round of funding but it can reasonably assumed to be at least $200 million. Flynn says the round isn’t yet complete and is likely to expand by another $10 million. Participants will likely include strategic investors as well as VC funds.

Flynn’s decision to work with Tonian’s founders made it easier for the funds to put their trust in the new technology. Besides Flynn and White, the seasoned group of entrepreneurs includes Kaplan, among the founders of the life science startup XenneX, which was acquired by BioTime; Asher, who oversaw a string of companies acquired by IBM, including XIV; and Halevy, who, before joining Tonian’s founding team, helped build a company that was eventually bought out by Larry Ellison’s Oracle for $100 million.

Primary Data is secretive about the product it has under development to avoid being copied. But Flynn was prepared to shed some light on how the company is trying to provide solutions for challenges faced by IT managers in organizations where data is scattered among different types of storage in their servers and in the cloud. The transfer of data between storage facilities currently requires manual intervention and Primary Data’s goal is to provide a free flow of information according to the organization’s needs.

Liberating the data

“Data today is trapped inside the storage systems that hold it,” explains Flynn. “We’re making it so data can live beyond the boundaries of the storage unit. This is particularly important because what administrators want to do is manage data, not manage storage systems. Flynn claims the system designed by the company will be able to place the data in the optimal place for volume of storage required and performance. It will also transfer the data when necessary to another optimal location according to the conditions laid out by the customer, liberating the data from the hardware where it resides and take into consideration other factors such as security settings availability.

Primary Data is building systems comprised of both software and hardware, with the software developed in-house and the hardware being off- the-shelf.

Meanwhile Primary Data is working with a limited number of customers to ensure that the product works properly. In two or three years, once it goes onto the market, the company’s customer base will consist of massive users of data like media, oil and gas, bio-info and semiconductor companies. The product should also appeal to organizations that require advanced analytic capabilities in the information cloud.

Daniel Bar-On