Nutanix races to join the $1bn start-up club

Nutanix, which looks like being the next billion-dollar start-up to emerge from the revolution sweeping through data centre technology, is nothing if not bold.

That extends to a new $156m round of financing announced on Tuesday which includes a $55m slice of debt – a hefty commitment for a company that only began to generate revenue two years ago and has yet to turn cashflow positive. But Goldman Sachs and Morgan Stanley are already jostling for prime position in a future IPO.

Dheeraj Pandey, chief executive, says of his company’s strategy: “We’ve been bold and taken the big guys head-on.” By targeting the big corporate customers with the most demanding datacentre needs, he claims that Nutanix has reached $100m in lifetime revenue quicker than any hardware start-up since Sun Microsystems.

And Howard Ting, head of marketing, has this to say about the impact that companies like Nutanix are going to have on the current household names of the IT industry: “Hundreds of billions of dollars of market cap are going to be swept away.”

Nutanix makes converged appliances that combine storage, server and networking capabilities in a single box. It claims to bring massive efficiency gains to what it calls “webscale” workloads.

It is certainly growing fast. Around $80m in revenue last year, with growth hitting 30-40 per cent each quarter, according to Mr Pandey. Half of the company’s customers have returned to buy more equipment within six months of placing their first orders, he says.

The company’s latest round of financing includes $101m of equity led by private equity firm Riverwood Capital and SAP’s venture capital arm. According to Mr Pandey, the capital raising puts Nutanix’s valuation “within 5 per cent” of $1bn.

There is a further $55m in debt from two unnamed commercial banks. Companies like Jawbone and Survey Monkey have also raises large slices of debt recently, taking advantage of historically low interest rates. Yet even in these bullish times, most start-ups still avoid taking on debt, fearing that it could prove fatal if their cashflow dried up with a sudden economic reversal.

Mr Pandey’s optimism might owe something to the influence of some of his backers. The private equity arms of both Goldman Sachs and Morgan Stanley have made investments – a rare case of the rival Wall Street firms joining forces behind a young start-up. Such investments are a way for the banks to get a foot in the door ahead of an IPO.

A public share sales is still “nine, 12, 15 months” away, the Nutanix CEO says. By then it should be clear whether or not the extravagant claims are justified.