From the Partnership

Welcome to the inaugural issue of Valhalla Partners' e-newsletter, News from Valhalla.

Many of you have known us individually for some time and we have had the pleasure of personally sharing with you our recent successes as a firm. To further enhance our ongoing relationship with you, we are introducing News from Valhalla to keep you updated on what ventures we are working on, why we are working on them, and what kinds of opportunities we are seeking.

The focus for this first issue is the storage sector. Over the past five years the firm has made five investments in storage-related businesses (Dataupia, LeftHand Networks, Nirvanix, Scentric, and SEPATON ). This sector has enjoyed rapid growth and we believe that our investments reflect strong performance due to both good execution and underlying choices in technology. We think that these trends, and our investment theses, might be of interest to you.

We hope you find this newsletter useful and welcome your feedback. Please reply with questions, observations, and suggestions for making News from Valhalla better.

Partners' Viewpoint:
Charles Curran on "Storage-as-a-Service"

The idea of outsourcing data storage - Storage-as-a-Service - has resurfaced in the past couple of years, but what the buzz misses is a precise sense of areas where storage-as-a-service will fill a compelling need.

Our analysis around the Nirvanix investment (see Portfolio News below) suggested that a very large storage-as-a-service opportunity is emerging due to the growth of digital media content on the Web.

The Web 2.0 startups which have sprung up to help users work and play with digital-media content need to provision storage at varying scales, but do not always have the skills or desire to do so themselves. We posit that these companies will need storage services customized for their needs.

As an interesting aside, the findings should also hold for mature companies such as Symantec and others who are building online businesses for backup, photo-sharing, or synchronization which demand online storage for end-users.

Valhalla CEOs: Patrick Harr

Position: CEO of Nirvanix, a provider of massively-scalable media storage delivery services (SDS) for the Internet and one of Valhalla 's most recent investments (see Portfolio - Company News below).

Career Highlights:

• Entrepreneur-in-Residence, Enterprise Partners Venture Capital
• President and CEO, Preventsys, Inc. (acquired by McAfee)
• Vice President of Enterprise Products Group, McDATA Corp

Education

BA, political economy and Russian, Tulane University ; MBA, marketing and entrepreneurial studies, University of Maryland .

Personal

Lives in the San Diego area with his wife and three children; Avid Little League basketball coach.

How did you get to where you are?

I started my career at Novell, who taught me how to be a good marketer and think competitively.

I also had early experiences in business development and product management which acted as a crash course on how to know what customers want and how to keep them incredibly satisfied.

These prior customer interactions left a deep impression on my attitude, and competitive drive, of "work hard, play hard and have fun with what we're doing." I've set the pace at Nirvanix with much the same focus on teamwork, accountability, attention to detail, and having fun.

What do you see ahead for 2008?

1. Greater shift from Build-it-Yourself to rent/service model
2. Virtualization for the entire technology stack
3. The social networking paradigm becomes front and center for the enterprise.

Why is your company primed for success?

1. Tremendous market opportunity for digital media and user generated content
2. Unmatched technology platform for storage delivery service
3. A phenomenal team that is second to none

Analysis: "Big" vs. "Wide" Storage

An important element of the Nirvanix business opportunity is the much deeper transition that is taking place in storage from "Big" to "Wide" storage infrastructure.

"Big Storage," whose gorilla was EMC, featured vertically-scalable storage on large central platforms, epitomized by the Fibre Channel SAN. In what marketing guru Geoffrey Moore calls a "tornado" of demand, a huge volume of "Big Storage" buildouts has ensued over the past five years. We believe that this tornado is coming to an end.

However, we are not yet in the "Wide Storage" tornado. The critical mass of buyers is not quite ready to switch over to the new platform. Hence, debates rage about NAS vs. SAN, IP vs. FC, and clustered file system schemes of various types, signaling market uncertainty about what constitutes the core solution, and further uncertainty about needing to buy it.

"Wide Storage" is the natural medium for supporting a service like Nirvanix', as well as massively-scalable datacenters such those being built by Google, Microsoft, and others.

Portfolio News

Exits:

RealOps, Reston, VA
We congratulate President and CEO Sean McDermott and his team on the acquisition of our portfolio company RealOps, a leader and pioneer in IT task automation and run book automation, by BMC Software.

"It's a great win for a great team," said RealOps Board Member and Valhalla General Partner Gene Riechers.

In 2004, Valhalla made its first round investment in RealOps when enterprise software was an out-of-favor sector, and data-center management software was a comparatively unexciting subsector within that market. It would have been easy to miss the value of the RealOps solution to both customers and potential acquirers.

In fact, the market sector was slow to take off and, as happens in many young markets, the competitive struggle between RealOps and its other startup rivals took the form of a battle for partnerships as much as for customers. These partnerships eventually developed into acquisition discussions and, for the RealOps team, a successful exit.

Follow Ons:

Dataupia, Cambridge, MA
Fairhaven Capital led a $16 million Series B Round at Dataupia, joined by existing investors Valhalla and Polaris.

Dataupia launched the Dataupia Satori Server in May 2007, a "scalable all-in-one data warehouse appliance that easily integrates into an organization's existing infrastructure." The Boston-based company, founded by ex-Netezza CTO Foster Hinshaw, has a number of OEM customers.

BDMetrics, Baltimore, MD
Greenhill led a Series C Round of $15 million at BD Metrics, with Freeman as another new investor. Valhalla contributed $4 million and other existing investors joined the round.

BDMetrics provides the technology to power the search, personalization, media and lead generation functionality for a trade show or community's online presence. The new round will allow the company to expand its You-Based and Event365 platforms.

New Investments:

Avail Media, Reston, VA
Valhalla joined Columbia Capital, Novak Biddle Venture Partners, and Pioneer Ventures in the final tranche of a $25 million Series B round at Avail Media.

Avail provides managed content services and technologies for telecom, cable, and Internet service providers deploying video over IP (IPTV).

ExaDigm, Santa Ana, CA
Valhalla and Dunrath Capital led a $12 million Series B round at Santa Ana, California-based ExaDigm Inc., a startup manufacturer of wired and wireless point-of-sale (POS) terminals. The investment fund of industry veteran Jack McDonnell joined the round as well.

Nirvanix, San Diego, CA
Mission Ventures and Valhalla co-led a $12 million equity financing round with participation from Windward Ventures. Nirvanix will use the funds to expand its business-to-business Storage Delivery Service (SDS) globally. The recently launched Nirvanix SDS, which enables web applications to meet the demands of storing and delivering billions of media files to its end-users around the world, has over 40 customers already using the service.

Verical, Alexandria, VA
Valhalla led a $3 million Series A round in Verical, joined by the Virginia CIT's GAP Fund and a group of angel investors.

Verical provides an online marketplace for suppliers of electronic components and the manufacturers who incorporate these parts into products.

Q & A

We want, as much as possible, to open up our newsletter to questions, opinions, and suggestions from our readers. The great magic of our newest medium for communication is its interactivity.

Please click here to submit feedback. We will undertake to respond to every submission, and to print those of general interest in this section. The partnership is happy to address topics such as hot technologies, exit strategies, or due diligence. We look forward to hearing from you.