Channel-Focused Storage Startup Set For IPO

Compellent executives said the IPO would take place this quarter.

Eden Prairie, Minn.-based Compellent is the developer of Storage Center, and enterprise storage solution for data replication and recovery. The company, which has sold its products exclusively through solution providers since it first launched, said in its filing that it has not had a quarterly profit since it started selling products in early 2004, and that short-term profit prospects are low because of the costs of going public.

The company's channel focus is the basis of a good portion of the risks that potential investors face.

In its SEC filing, Compellent said it receives a substantial portion of its revenue from a limited number of channel partners, and that the loss of all or a significant part of orders from one or more major partners, or the loss of a single large partner, could harm its business. The company's top 10 channel partners accounted for 53 percent of its total revenue last year, compared to 70 percent in 2005 and 81 percent in 2004.

One of those partners said that Compellent, like other companies that have recently gone through the IPO process, risks losing business or channel partners by focusing on the IPO and losing track of its core business.

"From a sales and marketing aspect, Compellent is falling into the same trap as CommVault and Data Domain," the solution provider said. "They're focusing on going public, and aren't remembering they need to focus on the customers. They focus on the IPO, and then fall behind on investments in sales and marketing."

The solution provider said Compellent's salespeople are very committed to the market, but that the company has horrible marketing. "I'd say the same about CommVault and Data Domain," the solution provider said. "They are riding the IPO wave. They have a story to tell, but they're not telling it."

Compellent said that in order to grow it needs to recruit and train new channel partners, especially those with relationships with small-to-medium enterprises. It also recognized that its channel partners sell competing products. Compellent also said that the failure of a channel partner to correctly install and configure its products could harm its business.

The SEC filing gives a chance to learn much about Compellent's business model. The company said it relies on a limited number of suppliers, including Bell Microproducts for custom system controllers sourced from Supermicro Computer, Xyratex for custom enclosures and Seagate-brand hard drives, and on Anacomp for vendor-neutral hardware support.

The company has been talking about IPO possibilities since September, when it received its latest round of venture capital funding of $15 million.

Compellent plans to use the proceeds of the IPO for sales and marketing activities, research and development, working capital and possible acquisitions of or investments in other businesses, products, or technology.