VCs Have Their Heads in the Clouds

(page 2 of 2)

They provide tools and services that help an IT manager build out, monitor, and manage the virtual hardware inside the cloud.

Lofty Platforms

On top of those are development platforms that can be tailored to a specific cloud, such as Amazon's, or tied to a programming language, such as Ruby on Rails. Startups here include Bungee Labs, EngineYard, and Coghead. Once developers have their programs built on the cloud, they need to monitor and tweak them using tools from the likes of RightScale and Hyperic. With the exception of Enomaly and Coghead, all of these startups have scored venture funding this year.

Coghead raised $8 million last year, and Reuven Cohen, co-founder and CEO of Enomaly, says he's fielding about 40 calls a week from venture firms that want to invest in his profitable, boot-strapped company. "I'm not in any desperate need to raise funding to keep the business afloat, but we could grow substantially faster," Cohen says. "We are open to it and from what I can see, there won't be a better time for valuations."

Valuations might be on the rise, but VCs are still focused on capital efficiency. For example, Sunil Dhaliwal, a general partner with Battery Ventures, says he's not interested in investing in any cloud provider that wants to build out thousands of servers, as there are plenty of companies—among them, Google, Amazon, and Rackspace—doing that already. In fact, he's approaching the entire cloud space with caution. "We're so early and there's still plenty of money to be lost—and I underline lost here—and plenty to be made," Dhaliwal says. "I think there is going to be a lot of trial and error. People are defining and building solutions without people knowing how they really want to consume them."

He believes the big opportunities will lie with firms that can help corporate customers connect their existing IT networks to the cloud, as well as with those that provide computing as a service to small and medium-size businesses that don't want to manage their own IT networks. One way or another, the move to computing delivered as a service is a huge change in the way businesses and even consumers will consume information technology. As far as venture dollars floating among the clouds, this is only the beginning.

Provided by GigaOm—