Analysis: Violin Memory Gearing Up For IPO?

Violin Memory, the hot tech startup that provides ultra-fast flash memory storage for datacenters and corporate clients, could be gearing up for an IPO.  In a recent interview with Xconomy, Violin’s CEO Donald Basile hinted at a possible IPO.

“We have, in 24 months, put together a quarter-billion dollars for Violin… That is a lot of money for a company that had zero revenue when we started.  It means people believe there is huge opportunity here.  On the other side of the equation, it means you have to get pretty big”
-Donald Basile, CEO, Violin Memory

I think going public at such an early stage could be a big mistake for the company, but temptation of a hot IPO market might be too much to resist.

Violin Memory sells “scalable memory arrays” where lots of fast flash memory chips are used to access frequently used data in servers.

Last month, the company raised $40M in funding at a valuation of $440M.  If the Violin decides to go public, the valuation would definitely go up considerably and could reach $1B+.

Donald Basile, who used to serve as the CEO of Violin’s competitor Fusion-IO ($FIO), certainly has done a great job growing the company.  The company is expected to surpass $100M in revenues for 2011, which is an impressive accomplishment for any startup .

“Market conditions are obviously a factor in our decisions.  I’m also interested in how Groupon is treated, because it’s had such a fast ramp-up. Is it okay to have a short track record, if that track record is strong?”
-Donald Basile, CEO, Violin Memory

Given Basile’s background as a venture capitalist, the timing of this announcement strikes me as somewhat odd.  The company has a lot of potential, but I think going public at such an early stage could be a big mistake.

It would be a huge cash grab for Violin’s early stage investors and bankers, but it also puts enormous amount of pressure on the company to deliver consistent results, which is tough for any early-stage hardware startup.

I think the company should stay private for now, but the siren song of favorable IPO market conditions might be too much to resist…

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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