The R&D Tax Aspects of Data Storage Startups
digital universe is constantly expanding. Actually, it is
doubling in size every two years. It is projected that by 2020,
it will contain nearly as many bits as there are stars in the
universe. A recent EMC sponsored study predicts that data
created and copied will grow by a factor of ten between 2013 and
2020, from 4.4 trillion gigabytes to 44 trillion.
In our increasingly
data-intensive world, it is no wonder the data storage
industry has gained so much attention. According to research
firm International Data Corporation (IDC), companies will
spend over $40 billion on storage hardware in 2015 alone.
The dynamic data storage
market has been marked by a fierce competition between
technology giants and well-funded start-ups that rely on
innovation as the basis of competitiveness. The present
article will explore the most recent trends in data storage
and discuss how innovative start-ups are gaining ground in
this highly competitive segment.
The Research &
Development Tax Credit
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13%
of eligible spending for new and improved products and
processes. Qualified research must meet the following four
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include
employee wages, cost of supplies, cost of testing, contract
research expenses, and costs associated with developing a
patent. On December 18, 2015 President Obama signed the bill
making the R&D Tax Credit permanent. Beginning in
2016, the R&D credit can be used to offset Alternative
Minimum tax and start-up businesses can utilize the credit
against payroll taxes.
Flash Memory and the
Technological Evolution of Data Storage
Invented in the 1980’s, flash memory
technology has become ubiquitous over the last decade, due to
the increasing use of smartphones, tablets, and other mobile
devices. Compact and flexible, flash memory is a nonvolatile
computer storage medium that can be electronically erased and
Different from hard disk
drives (HDD) that use rigid, rotating disks coated with
magnetic material, flash memory is a solid state storage
device, meaning there are no moving elements and it is an
electronic memory instead of mechanical.
Due to its unique
configuration, flash memory technology represents significant
advances in comparison to hard drives both in terms of energy
consumption and vulnerability to mechanical errors. It is also
lighter, smaller in size, and it allows for faster access.
This reduced access time enables users to retrieve data up to
20 times faster than hard drives. It also allows them to start
transferring data in less than a thousandth of second.
Because of its easy and
fast information storage, flash memory is seen as a
productivity enhancing tool that enables considerable
acceleration of online operations.
Research foresees an unprecedented
generation of data over the next years. This data boom goes
hand-in-hand with the need for storage capacity, which
represents an increasing share of companies’ IT investments.
According to CB Insights, the data-storage market has
attracted more than $6 billion in venture capital funding
distributed among 96 startups between 2010 and the first half
companies are offering innovative storage-related hardware,
software, and services that help organizations store data
without compromising the speed of their operations. The
following paragraphs discuss how data-storage startups are
creating all-flash solutions that help companies navigate the
world of big data.
I. Tintri, Inc: The mismatch between our
dynamic, virtualized environment and traditional storage
products has become increasingly evident. Aiming to bridge
this gap, Mountain View, CA based Tintri offers highly
adaptable, smart storage solutions that enable IT workers to
focus on virtualized applications instead of managing storage
The company has
developed user-friendly, application-aware storage products
capable of seeing how applications behave at the
virtualization layer and presenting information in a way that
is useful to IT professionals.
The “innovation obsessed” Tintri holds nineteen patents and
the company recently introduced the VMstore T5000, its first
all-flash series. The innovative solution is entirely
VM-aware, which means that users do not have to worry about
logical unit numbers or volumes, they only have to think in
terms of what matters to the organization: virtual machines.
Tintri VMstore T5000
All-Flash series can pack 5,000 VMs into just two rack units,
putting an end to over-provisioning. The company’s ambitious
2016 roadmap aims to scale up its storage to support a total
of one million VMs with automation, self-service, and
As of August 2015,
Tintri had raised a total of $260 million in funding. It is
said to consider a possible IPO in the first semester of 2016.
II. Pure Storage, Inc: Named a leader two years
in a row in the Gartner Magic Quadrant for Solid-State Arrays,
Pure Storage Inc. aims to transform IT by offering innovative
storage that allow for faster applications, real-time
analytics, and a completely virtualized environment.
With over three hundred
patents and patent applications, the Mountain View, CA based
company is a pioneer in all-flash solutions. Pure
Storage’s Evergreen Storage concept is an attempt to transform
the typical storage ownership cycle which requires frequent
and expensive upgrades that require major change sto the
Aiming to break this
costly cycle, Pure Storage created a modular, stateless,
scalable, field serviceable, and field upgradable flash array
that evolves with the user, adding value for over a decade.
Users of the innovative Evergreen solution deploy storage once
and then upgrade it in place for enhanced capacity, density,
performance or other features, eliminating downtime,
performance impacts, and data migration.
Business Model ensures that customers who buy into the
FlashArray platform are routinely modernized with the latest
technology for no additional charge.
In April 2015, Pure
Storage raised $225 million, its largest round to date,
totaling $470 million in funding. The company, which was
valued at over $3 billion, is among the fastest growing
hardware systems businesses in technology industry history.
Its average of more than fifty percent sequential quarterly
growth puts it at about twice the pace of other storage
III. Kaminario: Headquartered in Boston,
Kaminario focuses on delivering consistent and predictable
performance in a cost-efficient way. The company’s innovative
K2 all-flash array costs an average of under $1/GB, which is
significantly lower than legacy and hybrid storage. It is
designed to allow both scaling-up to add capacity or
scaling-out to increase both capacity and performance. These
features have made Kaminario a leader in midrange
enterprise-class all-flash storage.
With the K2 v5.5
systems, Kaminario has become the first vendor to offer
all-flash primary storage arrays that use solid-state drives
(SSDs) based on 3D TLC (triple-level cell) NAND chip
technology. The combination of the cost-efficient
capacity of 3D TLC SSDs and innovative replication
capabilities make Kaminario’s K2 a major breakthrough that
promises to make all-flash data centers a reality.
According to CEO Dani
Golan, the advent of SSDs based on 3D TLC narrows the price
differential between SSDs and hard disk drives to the point
where the other benefits of SSDs - including smaller size;
reduced heat generation; and lower complexity in terms of
moving data between different types of storage medium - trump
cost per gigabyte issue.
K2 v5.5 systems can also
provide up to 1.92 TB of 3D TLC storage. With features like
inline compression and deduplication, load-balanced writes,
RAID optimizations and a flash-friendly data layout
technology, it presents enhanced endurance, up to ten times
that of previous flash arrays.
Other examples of
thriving storage startups include Santa Clara, CA based Violin
Memory, Inc., whose all-flash storage platform
recently attracted five new Fortune Global 500 and four
Fortune 1000 customers, and Boulder, CO based SolidFire
Inc., which recently raised $82 million, totaling
to $150 million in funding.
In traditional IT environments, there are
separate systems for storage, servers, and network. This
entails handling the purchase, provision, and support of each
system infrastructure as well as maintaining relationships
with different vendors.
however, are challenging this paradigm, offering all-in-one,
hyperconverged solutions. As defined by the International Data
Corporation (IDC), “Hyperconverged systems are an emerging
technology that natively collapse core storage, compute, and
storage networking functions into a single software solution
With a simplified
architecture, hyperconverged systems allow users to scale-out
– meaning that they can enhance performance and capacity by
adding more modules, instead of being forced to scale up by
adding more drives, memory, or CPUs. These innovative systems
also enable a significant reduction in administrative overhead
and a simplification of vendor management.
IDC estimates that the
hyperconverged systems market grew 162.3 percent in 2014 to a
market value of $373 million. Nearly two-dozen companies
entered or expressed intention to enter said market in 2014, a
year that was also marked by product announcements and venture
capital funding. Projections for 2015 are very optimistic,
with $807 million in global revenue and 116.2 percent growth
Founded in 2009,
virtualized storage company Nutanix Inc. is a
leader in the hyperconverged market. With more than 800
employees, the San Jose, CA startup has raised more than $317
million in funding from top-tier investors. The company is
said to have its eyes set on an IPO with a potential valuation
of over $2 billion.
Nutanix defends that the
most transformative technologies are the ones we don’t even
think about. They simply work – they are invisible. Thus, its
objective is to make data center infrastructure invisible,
elevating each aspect of the IT lifecycle to focus on the
applications and services that power the user’s business.
software-driven Xtreme Computing Platform natively converges
compute, virtualization, and storage into a turnkey appliance
that is deployed in just 30 to 60 minutes, and runs any
application at any scale. It uses web-scale technologies and
architectures that originated in large Internet and cloud
companies, such as Google, Facebook and Amazon.
automation and rich system-wide monitoring for data-driven
efficiency, the Xtreme Platform is designed to tolerate
component failures through fault isolation and automatic
recovery without bringing down the overall system.
The concept of
“invisibility” is translated into greater agility, predictable
performance and scalability as well as reductions in both
virtualization costs (up to 80 percent) and total cost of
ownership (up to 60 percent).
Also founded in 2009, SimpliVity
is another prominent player in the hyperconverged market. In
March 2015, the company raised $175 million in series D
funding at a valuation of more than $1 billion, becoming the
first IT infrastructure company to reach such a valuation just
23 months after launching its flagship product.
Westborough, MA, SimpliVity is the creator of Omnicube, a
single IT infrastructure platform that provides enterprise
computing, storage services, and network functionality. The
solution features 10 patent-pending innovations and enables
WAN optimization, unified global management, seamless cloud
integration, primary storage deduplication, backup
deduplication, caching, and global scale out. In addition to
being a fraction of the cost of traditional infrastructures,
SimpliVity offers a major reduction in IT complexity.
In August 2015, the
company launched the third version of its virtualization
platform. With a focus on Remote Offices and Branch Offices
(ROBO), it offers automatic, multi-site network discovery,
including a support for hub and spoke configurations.
SimpliVity’s innovative Unified Protected ROBO solution is
designed to address the complex management and data protection
requirements of enterprises with remote office/branch
SimpliVity claims a 250
percent year-over-year sales growth for 2015's second quarter
and has won 700 partners in 61 nations and shipped 2,500
systems since 2014. According to the company’s website,
“SimpliVity’s innovation is not additive and complementary to
in-place data center technology; it is revolutionary and
The Importance of
In the world of data storage, software
plays a crucial role in maximizing efficiency. A growing
number of software-only data storage startups focus on
eliminating and automating tasks that traditionally demand
labor, including managing backups and optimizing performance
through distribution among different devices.
This is the case for San
Francisco based Scality, a pioneer in
software-defined storage on a petabyte-scale. Founded in 2009,
the French-American company recently completed a $45 million
series D funding round. Since July 2013, it experienced a 400
percent growth in revenue and its staff went from 42 to 162.
Global resale agreements signed with Dell, HP, and major
customers including Dailymontion, Comcast, Deluxe OnDemand, UK
cloud provider Phoenix, and German television channel RTL II
have opened the way for such a remarkable growth.
Scality’s RING platform
for data storage can be overlaid on standard servers. In
practical terms, it enables users to keep their hardware and
use it to build an open-architecture, highly efficient storage
system. The innovative software makes standard x86 servers
scale to hundreds of petabytes and billions of objects. It
integrates with applications through standard storage
protocols such as NFS; S3; OpenStack Swift, and Cinder.
The RING has a patented
object storage core that manages data as objects - as opposed
to other storage architectures such as file systems, which use
file hierarchy, or block storage, within sectors and tracks.
This unique architecture increases availability and durability
while reducing operational costs.
In March 2015, Scality
launched the RING 5.0, which offers a simplified 15 minute
installation, UI-driven provisioning, Windows connectivity,
and performance boosts.
A 2014 IDC report placed
Scality as the leader in the object-based storage market,
giving it the highest scores in capabilities and strategy. CEO
Jerome Lecat expects that the company’s innovative solution
will represent $5 billion of the data storage industry over
the next five years.
San Jose, CA based PernixData
Inc. is another example of a software-only data
storage startup. The company’s FVP software moves storage,
reads, and writes in to the server tier using clustered
flash/RAM to ensure fast performance with seamless operations,
scale-out growth, and complete fault tolerance. By decoupling
strategic software functions from underlying hardware it
enables users to optimize storage for virtualized
With robust real-time
analytics, PernixData’s Architect software enables enhanced
visibility and control of virtual machines and storage. A tool
for holistic data center design and management, the Architect
uses operational logs and the company’s database to produce
custom suggestions on how to optimize capacity to accommodate
new applications. In addition to providing a more accurate
alternative to manual estimation, this automation of storage
planning frees up administrators to focus on more pressing
A New Frontier
In July 2015, Intel and Micron unveiled the
3D Xpoint, a new storage chip that claims to be 1,000 times
faster than the NAND architecture underlying most flash memory
cards and solid state drives.
This new class of
non-volatile memory is allegedly denser, tougher, and faster
than the competition. It is also smaller in size, since its
cells feature diodes instead of space-consuming transistors.
A recent report by
Objective Analysis predicts that 3D Xpoint production
shipments could start in 2017, with a potential $2.12 billion
market by 2019. The study concludes that this groundbreaking
technology will not replace NAND but it will rather insert a
new layer in the memory-storage hierarchy.
The unprecedented expansion of the digital
world has put data storage in the spotlight. As legacy models
prove unable meet the needs of virtualized applications, new
solutions emerge, including all-flash arrays, hyperconverged
systems, and uniquely designed software for storage
optimization. The multiplication of data storage startups and
their ability to compete with well-established technology
giants leave no doubt as to the power of innovation.
Federal and state R&D Tax Credits are available to help
stimulate and support companies who are developing innovative
data storage technologies.