Despite A Legal Tussle With EMC, Startup Pure Storage Raises $225 Million At A $3 Billion Valuation

Enterprise startup Pure Storage just got a huge vote of confidence from the venture world, even though it's playing in a chaotic market and the 800-pound gorilla, EMC, has been suing it and some of its employees.

It just raised a huge $225 million round that valued the company at over $3 billion, Pure Storage announced on Wednesday.

That brings the total raised to date to about $470 million, it says.

To give you some context: that valuation is way bigger than the market caps of two of its rivals, that both hit troubled times after their IPOs.

Fusion-io, the employer of Apple co-founder Steve Wozniak, is trading at below $10/share with a market cap of $1.04 billion.

And Violin Memory, which went public in September, is trading at under $4/share, with a market cap of $330 million. As we previously reported, those companies have struggled with growth since their IPOs and have shaken up their executive ranks.

In fact, that's one reason why Pure Storage chose to raise more capital this way, instead of an IPO that was expected to happen in 2014.

The big raise helps Pure Storage "fend off prospective acquirers," says CEO Scott Dietzen in a blog post. He doesn't explain that, but before a company can go public, it has to show its books to the public. In doing so, a bigger rival could find the an irresistible acquisition price.

More interesting is his second reason for raising so much cash when he still has "most of the $150m in the bank from our round last summer," he says.

He wants to make employees happy with a big IPO. He writes:

But the biggest reason to stay private for a while longer is recruiting: lots of people want to be part of a company when it goes public. First, there's generally a material uplift in the stock price and each Pure employee has an ownership stake in the business. Second, the IPO is rightly seen as a fun, exciting rite of passage that tech entrepreneurs want to be part of. So the longer we wait to IPO, the more incredibly talented individuals we will be able to recruit to join the Puritan cause.

That's especially telling because Pure Storage has been in a legal tussle with EMC over recruiting employees. Over the course of 2013, EMC sued six former employees that joined Pure Storage, Dietzen revealed in a blog post in November, and then sued Pure Storage itself. Dietzen wrote:

EMC elected to broaden their legal action to sue Pure Storage, alleging that in aggregate 44 former EMC employees from the sales side have joined Pure over the last two years (which would amount to about 13% of our workforce) and is claiming that these employees and Pure in general have behaved unethically.

The legal situation is still ongoing, a spokesperson confirmed to us.

But investors aren't scared off because the enterprise storage market is so enormous and undergoing a huge transformation. Companies continue to store ever more data and are starting to buy faster, cheaper flash storage, the kind that runs your smartphone and tablet.

Enterprises are expected to spend $1.5 billion on this new type of flash storage device by next year in a market growing at 59% a year, according to IDC.

The Pure Storage round was led by institutional investor Wellington Management, with contributions from T Rowe Price, Tiger Global, Greylock Partners, Index Ventures, Redpoint Ventures and Sutter Hill Ventures.