IT Should Prepare For Cloud Startup Downpour

Venture capitalists are voting for cloud startups in staggering numbers. Start developing a rigorous process now for picking enterprise IT cloud tools and vendors.

Patrick Houston, Contributor

April 16, 2012

4 Min Read

If your head is already spinning from the growing number of "aaSes" out there, brace yourself. It's only going to get worse. Venture capitalists are pouring money into cloud-based startups, portending an onslaught of new service options coming to you soon. If I were you, I'd start developing a rigorous process for picking enterprise IT cloud tools and vendors now--especially to gird yourself against rogue line-of-business managers tempted to leave the IT queue in order to subscribe to services on their own.

I offer this advice having just sat through a breakfast panel hosted by four self-admitted cloud evangelists from blue-chip Silicon Valley venture firms, as part of my new gig with, covering among other things the startup scene. Although insiders know these venture capital companies as Pillsbury Winthrop, NEA, Scale, and Bessemer, you'll know them by their hits, namely, Pinterest, 3Com, TiVO, and more.

First, let me share some of the numbers we were fed--stats that say as much as anything about what's ahead: VCs devoted $6.9 billion in 2011 to "Internet-specific" startups, a proxy term for "cloud" because that's what most of them are doing, according to Steve Bengston, a director of a startups practice at PricewaterhouseCoopers. That's up 68% from last year.

In Q4 alone, cloud-related investments of $1.8 billion outdistanced the dollars that went into biotech ($1.3 billion), cleantech ($883 million,) and medical devices ($498 million.)

It's not just the amount. It's the number of deals, too. During all of 2011, VCs funded 1,004 software startups that were mostly in the cloud--or more than double the 446 biotech companies that received dough.

Not all those companies will survive to deliver a product one day, of course. A large number of startups makes the chance of success more likely.

Remember, VCs have a clear imperative to find the money. But it's only partly about the big money, such as Facebook's anticipated $100-billion-plus IPO valuation. You can also learn from where they're scouting, digging into real work, and making their claims, actions that all offer directional guidance for what IT leaders can expect in two to seven years.

Osman Ahmed of Scale Venture Partners, which invests in mid-to-late-stage startups, said his firm sees a lot of action in three areas: big-data analytics, telephony, and data-storage services.

You could also get an instructive glimpse into the future by the names of the companies rolling off the VCs' tongues. Here are three that piqued my interest for enterprise IT use:

-- CloudFlare, a cloud-based service that protects and accelerates any website. Once you sign up to its network, your Web traffic is optimized for speed and your site shielded from threats, bandwidth-hogging bots, and crawlers.

-- Apperian, which helps companies manage and secure mobile apps across platforms. This startup plays to the Bring-Your-Own-Device (BYOD) revolution befuddling so many IT groups as they struggle to address the issues of personal smartphones used for business purposes.

-- Stormpath, a developers' tool, helps companies manage user access, authentication, and identity across mobile and enterprise apps in the cloud and behind a firewall.

I'll be keeping a critical eye trained on these and other potentially promising companies, trends, and technologies emerging from the vibrant Silicon Valley startup scene. And when I say critical, I mean critical. VCs are like baseball players. They might be pros, but even the Hall of Famers fail at the plate more often than they succeed. They whiff, too. Plus, not everything they tout makes for something you need to note.

In fact, please tell me what you'd like me to cover. What do you, as an IT leader, probably at an established company, want to know about startups? What do you want to learn about them? From them?

For now, though, start getting ready, because the numbers show that the VCs promise to make the skies much cloudier in the years ahead.

Patrick Houston is the co-founder of MediaArchiTechs. He is a former SVP for a new media startup, a GM at Yahoo, and editor-in-chief at He can be reached at [email protected]

The pay-as-you go nature of the cloud makes ROI calculation seem easy. It’s not. Also in the new, all-digital Cloud Calculations InformationWeek supplement: Why infrastructure-as-a-service is a bad deal. (Free registration required.)

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About the Author(s)

Patrick Houston


Patrick Houston is a former SVP for a new media startup, a GM at Yahoo, and editor-in-chief at He is co-founder of MediaArchitechs, which offers strategic product, content and business development consulting to technology-driven media companies. He can be reached at [email protected].

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