It's Cloudy, but When Will It Rain?

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While the purchase price may have missed the venture capital returns mark, buying Slicehost appears to have reaped major benefits for the company: Rackspace currently has a $2.3 billion market capitalization and a 4X multiple on enterprise value to trailing 12 months revenues. Granted, cloud computing is only part of the Rackspace services offering that also includes dedicated hosting, but the market is clearly valuing the company's cloud business at a higher multiple than a normal managed hosting provider. For example, Savvis, a competitor in the managed hosting space that recently enhanced its own cloud computing offering, has a market cap of $895 million and a 1.5X multiple on enterprise value to trailing 12 months revenues. The market appears somewhat kinder to Terremark, another managed hosting competitor that offers cloud services; it currently sports a 2.8X multiple.

Once a cloud startup has appealing business metrics, there are a number of potential acquirers that can help make it produce rain. There are the large cloud incumbents like Amazon (AMZN), Google (GOOG), Microsoft (MSFT) and of course, Rackspace. Likewise, there are large companies trying to move into the cloud marketplace from adjacent markets, such as Akamai (AKAM), AT&T (T), Cisco (CSCO), EMC (EMC), HP (HPQ) and IBM (IBM). There are also the managed hosting providers like Savvis and Terremark that will likely be looking to continue bolstering their cloud offerings.

With Rackspace setting the mark, the current market enterprise values and revenue multiples for cloud startups is compelling. If they can follow the path of Slicehost, then it appears that those of us in the venture capitalist community focused on the cloud will indeed be breaking out our umbrellas some two years after first funding such startups. And, according to my calendar, the rainy season will start by late 2010.

Also from the GigaOM Network:

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Handset Makers Set to Cash In on the Holidays

Apple Closing In on RIM in U.S. Market Share

Iomega's New StorCenter: Storage Overkill?

You Be You: Create a Profitable Personal Category

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