VC Roundtable: Poking Their Heads Through Cloud Computing

In the more than three years since the term “cloud computing” was coined at the first Cloud Expo, VCs have backed a range of companies that have developed virtualized computing resources to deliver software and information on-demand.

And it appears to be an investment opportunity that is growing.

The Sand Hill Group, a software consulting and angel investment, reported earlier this month that cloud computing represents one of the largest new investment opportunities on the horizon. In its report, the Sand Hill Group cite a CIO who said that spending on cloud computing will reach 40% of his IT budget in the next three years and 70% in five years.

Without a doubt, interest in cloud computing continues to grow, as evidence by this week’s Cloud Expo in New York, which kicks off today and is expected to attract more than 5,000 delegates.

With so much more focus on cloud computing, I asked sixinvestors what they see as coming trends in cloud computing.

Mike Volpi, partner, Index Ventures:

The concept of “the cloud” has a lot of interesting areas for investing, where Index to date has made seven investments.

We feel that the cloud is a very significant evolution in the computing business—comparable to the shift from mainframe-based computing to client/server or to the Web model of computing. As a result, virtually every component of the software value chain has the opportunity to be redefined.

In addition, we also see adjacent markets being impacted by the cloud. Storage, for example, will have interesting opportunities from the cloud, and it’s where we recently invested in a company called StorSimple. Even networks, which have been historically designed assuming physical hardware, will change.

Of course, each one of these investment areas also has an incumbent vendor who could pivot to fill the opportunities that have been created, but, inevitably, we will some great companies built in the cloud.

Robin Vasan, managing director, Mayfield Fund:

One key area of opportunity we’re seeing around the cloud is with data and scaling. Data growth has gone from linear to non-linear, presenting opportunities for entrepreneurs to solve significant problems that will drive the next generation of services for consumers and value for enterprises. While the incumbents will also benefit, this is a fundamental shift in the technology landscape, presenting a chance for the next enterprise technology giants to emerge. For instance, Northscale, a company we are tracking, is solving the data and scaling problem with an innovative approach based on the widely adopted memcached solution.

Cloud architecture is also causing changes in the application development environment. Just like how COBOL was replaced by more mainstream programming languages like C and C+ and Java, which continues to be widely used, but has started to show its age. They are being challenged by a variety of new languages and frameworks, such as Ruby/Rails, Erlang and Scala/Lift, which are built for scale out commodity and cloud computing environments. The top Internet companies are being forced to use these newer languages and frameworks to take advantage of increased programmer productivity, but also to cost-effectively serve massive demand.

Maha Ibrahim, general partner, Canaan Partners:

Server virtualization is reaching critical mass and making it cheap to put applications in the cloud.

However, just because a company has virtualized its servers and achieved some cost savings, it doesn’t mean the virtualization game has been won.

As the virtualization market matures, the next phase will be about innovative vendors, such as SOASTA, which optimizes performance in the cloud, and Virsto, which dramatically lowers the cost of storing virtualized data.

Companies that fail to look beyond server virtualization will simply be moving the bottleneck down the value chain, where it becomes exponentially more expensive to address.

Paul Weinstein, general partner, Azure Capital:

We’re awash in information. What was once scarce, is now abundant. IDC estimates the amount of data stored worldwide in 2006 was 161 exabytes —or 1 billion Gigabytes —and that by 2011 global data will grow to over 10x.

As business data (structured and unstructured) and consumer data, such as video, audio and image content, continue to grow at mind boggling rates, the storage industry will be compelled to show innovation in storage management, organization, networking and most importantly, economics.

That’s where the adoption of cloud storage techniques comes in, which will be critical to managing the cost and scalability implications of such growth. We see the opportunity to use cloud storage solution for large, scale-out storage projects, including video/network surveillance, high performance computing applications, backup and a range of government storage initiatives.

Coraid [an Azure-backed company] is one such vendor that is offering a compelling solution for virtualized storage environments and emerging private cloud architectures. Solutions like Coraid’s EtherDrive allow for non-disruptive scaling, by using an innovative Ethernet storage fabric that fit seamlessly into existing cloud and virtualized server/storage environments.

Scott Johnston, venture partner, Alloy Ventures:

Regardless of label — cloud computing, utility computing, hosted services, or software-as-a-service — the move toward pay-per-use, on-demand apps and shared IT resources is not only real, but is continuing to grow in impact. Businesses of every size in every market compete for customers on the basis of agility and value, and cloud-based solutions give them an edge.

In fact, while concerns over data security and control may have slowed initial adoption, many companies now recognize that centralized, cloud-based security is actually superior their own internal efforts.

YouSendIt [an Alloy portfolio company] is an example of a cloud service that has gained adoption, with more than 10,000 corporate customers like Levi’s, Ritz Camera, VMware, Tibco, Thomson Reuters and Kelly-Moore Paints relying on the company’s managed file transfer service for the secure, guaranteed delivery of their time-sensitive data. As creation and sharing of digital content among individuals and businesses rises, the value of reliable, on-demand delivery and collaboration services like YouSendIt’s will only increase.

John Walecka, founding partner, Redpoint Ventures:

Over the past few years, we’ve seen considerable interest in technologies to leverage cloud computing architectures for large-scale data analytics. As data storage becomes more affordable and organizations have unparalleled amounts of data, companies are looking for ways to analyze and report on these massive data sets and to extend these capabilities to a broader audience.

We recently invested in Datameer, a company offering a big data analytics solution built on Hadoop which scales on clusters of commodity hardware to support cloud computing requirements. Datameer’s solution allows organizations to run business analytics on massive volumes of data from multiple sources using a spreadsheet interface. This innovation really opens the field for companies to gain tremendous insights into their business on the front lines so they can more quickly take these insights and apply them to their business

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