Cloud computing is changing the technology world and creating opportunity for hundreds of new companies — so how are investors thinking about which ones to put their investment behind?
Three Seattle-area venture capitalists — Frank Artale of Ignition Partners; S. “Soma” Somasegar of Madrona Venture Group; and Sheila Gulati of Tola Capital — spoke on stage Wednesday at the inaugural GeekWire Cloud Tech Summit about the state of the cloud computing industry and opportunities they see for related technologies and startups.
The panelists all agreed that it’s an exciting time for cloud technology — and that this is only the beginning.
“We are early in this game, and it’s a game that is fundamentally changing how computing happens,” Gulati said. “Cloud is the new operating system.”
The discussion, moderated by Seattle angel investor Charles Fitzgerald, ranged from the most attractive cloud-related areas of investment to how Seattle is becoming the cloud capital of the world.
Here’s a quick rundown of their insights, which have been edited for brevity.
Opportunities in the cloud from a VC perspective
S. “Soma” Somasegar, Madrona Venture Group: “In the last six to 12 months, we have been investing in a fair amount of what I call cloud-native, next-generation cloud infrastructure-related startups. It’s everything from serverless computing, to the world of containers, to event-driven functions. There are a bunch of things people can go solve in a startup environment.
As you move the stack, there is still a lot of value that people can think about delivering at the application level. We get excited about what we call ‘intelligent applications.’ It’s not just predictable behavior from an application, but one that can learn from the data you have access to and continuously learn from that and do a better job for customers. There are lots of enterprise use cases that are possible.”
Sheila Gulati, Tola Capital: “A lot of the opportunities for venture capitalists these days is up-stack, as you take advantage of the incredibly rich platform elements and the ability to develop and deploy more seamlessly and more easily.
But also, 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 cloud and then able to do very business-appropriate, business-useful comparisons. It’s incredibly invaluable. Our last investment was in the insurance software space. It’s specific to a vertical, it’s adding value. You have the industry incumbents really betting on this company in order to take forward the learnings and the benefit of cloud, mobile, and data-centric computing for their industry. We also like serverless.”
Frank Artale, Ignition Partners: “One of the things we look at, relative to cloud, are applications that could not exist were it not for what the cloud brings, from an application perspective. That may include low cost access to things like cognitive services; low cost access to elastic compute and storage; networking; availability. It’s all of these things that to build on-premise would just be too expensive to even go after. Enablement is always a big word for us.”
How much of IT spend is being eaten by the cloud, and how should companies think about migrating to the cloud?
Gulati: “As you take each layer of traditional IT spend and map it out, cloud revenue is eating different layers of the stack. Cloud vendors are coming out with services that replace a lot of the traditional, massive businesses. As venture capitalists, it’s important that we think of everything we do in the context of, let’s make sure we understand how this works.”
Artale: “With the public cloud, now that it has become a trusted infrastructure as opposed to a technical curiosity, we’ll see a similar pattern with enterprise IT that we saw in the late 90s when hypervisors first came into existence. You saw a lot of lighter duty, older workloads being moved into virtual machines, and virtual machines being collected on backs of servers for cost efficiency. You could do more with less hardware, you have some software, and you can run more apps. One of the first orders of business for enterprises of all sizes will be to identify existing on-premise applications that are candidates to make that move. People call this ‘lift and shift,’ or ‘modernization.'”
Somasegar: “Hybrid cloud will be around for at least the next 10, 20, 30 years. Not everyone can move everything they have on premise to the public cloud overnight. It’s going to take time. People also need to take time to get comfortable to feel like they have the right levels of security and data protection. It takes time to get that level of trust. And even then, there will be extreme situations, whether government related or industry-specific, where you’ll want some stuff on premise. Hybrid is how I think the world will operate for at least the next two or three decades.”
Seattle as the world’s cloud capital
Somasegar: “It’s definitely changing for the positive. I was at a dinner last month with venture capitalists and the who’s-who of the Silicon Valley ecosystem. They were saying that they’ve never seen so many Silicon Valley VCs come together in one place and were wondering what’s happening here. It’s a testament to people getting exciting about what’s happening in Seattle and how they can be apart of it.
We’ve also seen, at least in the past year, a tremendous amount of interest in terms of what’s happening in Seattle and the startups here. We host people from Silicon Valley a couple times a week because they want to come here and understand the ecosystem. They know something great is happening and they want to participate more.
And as much as we get excited about Seattle being the cloud capital of the world, it’s not just cloud computing. There are many other areas where we have a tremendous amount of innovation here, between the bigger companies and the startups. We are the No. 1 or No. 2 in what I call the hot technology trends. All of this together makes us better and better each day that goes by.”
Gulati: “It’s fine to call Seattle Silicon Valley’s little sister, but it’s not true. Everyone is moving up here; everyone is opening an office up here. The prevalence of more cloud computing happening here than in any other city in the world does change the game.”
Artale: “If you look at the movement, one thing people do notice is the amount of real estate leases that are being taken by mid-cap, large-cap, even startups from the Bay Area. We’ve had companies move here from the Bay Area. There is great access to not just software development talent, but people want to be close to the epicenter and thinkers in cloud computing.
We also find that we are much more concentrated geographically here. Silicon Valley stretches from San Francisco down to south of San Jose — that’s about 75 miles and many hours sitting in a car. [In Seattle] we are concentrated, so there is good promise around that.
The other thing is that, at least for high value software development talent and program management and marketing functions, people tend to stay in their jobs longer here. They don’t go work some place for two years and find the next hotly-funded startup and move on. There tends to be more durability of teams. From my perspective, that is super important. It’s something that is very attractive to businesses of all sizes.”