NVR provider Steelbox Networks has gone out of business in the last month.  Steelbox, a specialist in large scale video management systems, was unable to obtain additional funding. Square 1 Bank owns the assets. On January 22, 2009, a medium size integrator/OEM, AGS, announced that they acquired Steelbox's assets.

This report examines likely causes of this failure and the potential value of the technology assets.

Here is my speculation (not based on inside information, so skepticism is warranted):

• The technology is valuable as it uniquely solves a problem that will only grow in importance in the next five years - how to handle thousands of cameras with minimal hardware and at minimal cost.
• The company spent too much money too fast on sales and marketing.
• The company was never able to clearly communicate its value, causing confusion in the marketplace.
• The credit crunch that is significantly cutting back on VC funding hurt Steelbox's efforts to get a new round of funding.

Valuable Technology

Steelbox's architecture is literally unique in the video management space. This archictecture provided a 70% decrease in cost structure and far greater scalability. Read my detailed review of Steelbox's technology for details.

This is an excellent technology for large scale markets and could make an ideal acquisition for a company like Cisco.

Money Spent

Steelbox announced 3 rounds of funding with the last round of $10M USD in 2006. I would guess the total funding was around or just short of $20M USD. 

Rounds of funding are generally designed to last 1-3 years, with an average of 2 years. What most likely happened is that 2 years since their last funding, they ran out of cash from the previous round and were not able to obtain new funding.

Note: if you want to guess what vendors are trouble, see when their last round of funding is. If the funding was in 2006 and earlier, they better be cash flow positive or they could be in danger of shutting down without a new round.  Even if they get a new round, they may be forced to do 20%+ layoffs and the value of the company may drop significantly (i.e., "down round").

One phenomeon many noticed was Steelbox's high spending on marketing. The most obvious example was the huge 30 X 30 or 40 X 40 booth at the trade shows two years ago. This was the one with pictures of movies stars like Pamela Anderson. The cost of the booth and manning it is easily a few hundred thousand dollars. It signaled to many of us an alarming high rate of spending.

Problems Communicating their Value

I remember talking to a lot of people at the time and none of us could understand Steelbox's value. It seemed like just another NVR. Indeed, until I spent a few hours on the phone with Steelbox's engineering/product team, it was not clear to me. I assume that if I had a hard time figuring it out, other people did as well.

Credit Crisis Impact

Many IP video surveillance companies are not cash flow positive and are dependent on VC investments to fund their losses.  In normal economic times, this is standard business. Good companies can fairly easily access VC funds. However, the credit crisis has made VCs more careful about their investments, more demanding on the terms and potentially less able to provide funds.

Security System News is now reporting that Steelbox has been foreclosed by Square 1 Bank.

It will be interesting to see what happens to Steelbox's assets and which company is the next to be impacted.