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Why VCs continue to see potential in cloud computing


In insight / By Tanzeel Akhtar / 13 July 2017

Investors love throwing money at technology start-ups. Recent statistics show venture capital (VC) fundraising has picked up steam with technology gobbling up most of the funding.

Last year European VC fundraising hit a record €6.4 billion. This is the highest level since 2007, according to a report launched by Invest Europe.

Between 2012-2015 cloud computing was the strongest technology three years in a row, according to Deloitte. The three top categories of technology include cloud computing, robotics and mobile tech.

It is no secret that the top VCs will always have access to the best deal flow. I have always been curious about the VC type of investor - I love to watch high risk investments make a return in a short period of time. It is all a huge gamble! I now follow the highs and lows of Bitcoin just for fun (!) Start-ups are fuelled by ideas and innovative people, however sadly the majority of tech start-ups will fail.

But how does a VC decide which technology company to back? How do they know what new trend will take the technology industry by storm? What are the metrics? Is there a formula?

I first came across cloud computing around 2009. Fast forward to today - 2017 and cloud is now the main operating system. If your firm has confidential information and data that needs to be protected, most likely you will need cloud computing to back this up.

Jim Atwell, national managing partner for Deloitte's Emerging Growth Company believes cloud computing has been attractive due to, "The low cost of capital to build a product and the ability to license it over and over again," Atwell adds, "It's a business model that's very attractive to the industry.”

Today, most companies will run their software or store their data remotely via another company’s infrastructure. So has the peak investment period for cloud computing companies passed? Yes - the current architecture is over. However, there are multiple layers and continuous advancements in cloud computing that VCs can invest in.

We have all heard of the leading companies which dominate cloud computing - Amazon, Microsoft, and Google are the three companies leading the way in the public cloud sphere and continue to enhance their products. Google will soon launch a cloud computing service that provides exclusive access to a new kind of artificial-intelligence chip designed by its own engineers.

So what are VCs looking for in the next generation of cloud computing investment opportunities in 2017?

We have some insight. GeekWire hosted a Cloud Tech Summit in the U.S. Seattle which featured VC panelists Frank Artale of Ignition Partners, Soma Somasegar of Madrona Venture Group and Sheila Gulati of Tola Capital. What did we learn?


1. Cloud Native

There has been plenty of talk about “cloud native” in the past year or so. Somasegar revealed that in the last six to twelve months he has been investing in a fair amount of cloud-native which has been dubbed as next-generation cloud infrastructure-related startups.

For those unfamiliar with the term - cloud native usually refers to applications that are born in the cloud so this is everything from server-less computing, to the world of containers, to event-driven functions.

VC Somasegar says he is also excited about ‘intelligent applications.’ This is not just predictable behaviour from an application, but one that can be taught through data.


2. Up-stack, server-less tech and data ownership

During the Geekwire discussion, Sheila Galati of Tola Capital identified there are a number of the opportunities for venture capitalists these days in “up-stack” which allows investors to take advantage of the incredibly rich platform elements and the ability to develop and deploy more seamlessly and easily.

Commenting on data Galati says: “The real benefit that the cloud gives you is that data ownership, that data predictability, that comparability between your different customers because you are running all of that data in the cloud and then able to do very business-appropriate, business-useful comparisons. It’s incredibly invaluable.”

For more information, have a look at my previous post on "Fog Computing." According to Global Asset Management “fog computing" is the missing link between the cloud and the artificial intelligence explosion.

Cloud computing is continuing to flourish and VCs are spoilt for choice when it comes to spotting the next big advancement. It's clear that cloud computing is very much on the agenda for many VCs, is it on the agenda for your business?


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Tanzeel Akhtar

Tanzeel Akhtar

Tanzeel Akhtar is a freelance investment journalist. She has contributed to the Wall Street Journal, FT Alphaville, Global Investor, CNBC, Forbes, Yahoo, Spear's Wealth Management and Marketing Week.

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