Reaching for the Clouds

Folks…good article about an emerging high tech investment strategy and opportunity for local companies to participate in…

Reaching for the Clouds

By Alastair Goldfisher

Forget about cleantech, mobile apps or even China. What I’ve been asking VCs about lately is their cloud strategy.

And if they don’t have one, I want to know why.

Just yesterday, I wrote about the cloud storage appliance-maker StorSimple, which is announcing today that it has banked a $13 million Series B round from new investors Mayfield Fund and Ignition Partners and return VCs Index Ventures and Redpoint Ventures.

Meanwhile, I’m reporting on another cloud storage company that is getting ready to come out of stealth mode in the next couple of days to announce an 8-digit Series A round. Stay tuned for more details about that Silicon Valley startup.

These and other recent fundings come as at least five cloud-based, venture-backed companies have been acquired in recent weeks, with the $2.4 billion sale of 3PAR being the most prominent. The M&A activity is leading many to wonder what other cloud companies are hot targets. My colleague Deborah Gage and I wrote about that in the latest issue of PE Week (subscribers can access it here).

As one cloud executive told me at the VMworld conference in San Francisco earlier this month: “Things are certainly getting frothy, and we expect to see a lot more acquisitions…in the months ahead.”

Many VCs have already figured this out, as evidence by StorSimple and other recent deals. When Redpoint Ventures raised $400 million for its fourth fund, which closed in February, the firm, which also is an investor in Cloud.com, said that it would focus on cloud deals along with social media, mobile Internet companies and cleantech. I’ve heard of other venture firms creating entire practices to go after the market.

Yesterday, I spoke about what’s going on in with Navin Chaddha, managing director at Mayfield, which led the StorSimple Series B funding. Chaddha was extremely bullish about the market. Fresh off of the sale of 3PAR, which the firm still held a sizeable number of shares in, Mayfield is also an investor in cloud companies Marketo, Cloud 9 Analytics and Gigya.

Chaddha is one of four partners at Mayfield looking at enterprise deals and cloud opportunities. The StorSimple deal is part of the firm’s 13th fund, which closed with nearly $400 million in commitments in 2008.

Chaddha believes that the nascent market will be a target for VCs for the next five to 10 years, in part because of the technology’s ability to make enterprises more efficient and to bring economies of scale to networks.

“VCs like funding companies that solve pain-points for consumers,” Chaddha says. “Whether it’s infrastructure companies, like 3PAR or StorSimple, or cloud applications or cloud-based software-as-a-service, the opportunities are massive. The cloud market is here to stay.”