Cloud Computing Vendors Ring In New Year With Big Funding, Investment Boosts

Cloud computing vendors may be popping the bubbly well into the new year, as a handful of promising cloud computing startups have started off 2011 with sizeable financial injections to get the ball rolling.

And the early influx of cash to kick off 2011 comes on the heels of many more cloud computing up-and-comers that closed out 2010 with late-year funding to help them dig their claws deeper into the channel.

The windfall of cash to cloud computing startups is a sign that the excitement around cloud computing is just as fervent, if not more so, in 2011 as it was in 2010.

"Cloud computing is even hotter this year," said Paul Burns, president of Neovise, a cloud computing and IT management analyst firm. "There is a ton of innovation, much of it happening in startup software vendors."

According to Burns, while the funding kick for cloud computing startup vendors is expected to continue throughout the year -- and probably at a faster clip and with bigger amounts than in 2010 -- cloud acquisitions may also best those of last year.

"Some in that same category are getting acquired," he said. "I expect a lot more acquisitions and investments in cloud computing in 2011. This will be a multiyear process of vendors and service providers building out the 'best' portfolio."

Among the companies to get a boost is self-service cloud automation provider Skytap, which this week secured a $10 million purse to help it bulk up its cloud automation presence. The $10 million Series C round of funding was led by OpenView Venture Partners with participation from existing investors Ignition Partners, Madrona Venture Group and Washington Research Foundation.

Skytap's plans are to use the funds to pump up sales and marketing efforts, and the channel is going to play a big role. Last year, Skytap joined forces with CSC to power CSC's CloudLab, and Sundar Raghavan, Skytap's chief product and marketing officer, said more partnerships are in the works.

"We think by investing strategically in that area [the channel] we can grow quite a bit," he said.

Also this week, cloud computing security player Symplified announced that it closed a $9.2 million Series B round of venture capital financing, which brings its total funding to $18.8 million. The company plans to continue to flex its cloud security muscle later this year with additional Series C expansion capital. Symplified offers an identity management suite for the cloud, tackling single sign-on, access control and identity management for both public and private cloud applications.

Next: Investing In Traction, Not Ideas

And cloud computing application and software company Cloudpic Global, based in Asia with R&D in the U.S., brought in $6 million in investment to continue building out cloud computing applications for the digital entertainment industry.

The recent cash infusions for Skytap, Symplified and Cloudpic follow a booming December where companies like Standing Cloud, an SMB service to install and use open-source cloud applications, and Factual, a cloud data-aggregation player, raked in $3 million in funding and $25 million in funding, respectively. In the same month, others like cloud storage player Nasuni brought home a $15 million boost, bringing its total raised to $23 million; and Cloud Engines, maker of the portable, personal storage and sharing cloud the Pogoplug, received $15 in financing from new and existing investors to expand the distribution of the Pogoplug service and devices.

Meanwhile cloud database maker Clustrix, which develops a clustered, key-value store system with its Clustered Database Systems (CDS) that is leveraged by large Web applications, took in an additional $12 million in VC cash through Series B funding in December, bringing its total haul to $30 million. Like its other well-funded cloud computing vendor brethren, Clustrix plans to flex its financial muscle to bulk up sales and marketing efforts and product development.

Mark Hill, board chairman for cloud infrastructure player BlueLock and managing partner at Collina Ventures, a private investment firm specializing in technology, said the big push to fund cloud ventures signals the market's acceptance that cloud computing will be a dominating infrastructure going forward and that buying servers will be a thing of the past.

"VCs tend to like to invest in businesses that have traction. They tend not to invest in ideas," Hill said, adding that 2010 and into 2011 showed that cloud computing is real and no longer just hype and tall talk.

Skytap CEO Scott Rosa added that the cloud computing market is at its tipping point and investors are hot on its potential growth.

"There are something like 650 to 700 VCs in North America and most of them haven't done a cloud investment," he said. "In the last two months we've had a half-dozen VCs and a number of banks approach Skytap about funding requirements. They all have money they have to put to work."

Next: Searching For A 'Focused Niche'

Burns was also quick to caution that the cash infusions many small cloud computing startups are receiving show that it's not just hype driving the investment in cloud computing vendors.

"There's hype, and there's people who put their money behind things," he said, adding that VCs and investors tend not to funnel millions of dollars based on hype alone.

And cloud computing solution provider Appirio, which in February 2009 closed out a $10 million Series C funding round, said the VC community has been eyeing cloud startups for a while, but the increase in investment activity shows that cloud computing is now on nearly every CIO wish list.

"VCs have been pouring money into cloud computing startups for years," Appirio CEO Chris Barbin said. "Now that cloud technologies are on the priority list of almost every enterprise CIO and even mandated to federal agencies, it's not surprising to see an uptick in investment. The interesting thing will now be to see which cloud investments start to pay off -- is it infrastructure, platform, apps or even emerging categories such as cloud brokerages?"

Just where cloud investments will pay off most is still up in the air. Burns suggests that it will be on the cloud computing infrastructure and service provider sides; while Skytap's Rosa suggested that cloud management and cloud automation, where Skytap plays, will be a big winner for investors. Collina Ventures' Hill pegged cloud infrastructure and cloud security as the big draws moving forward, but added that investors will be attracted to companies that that have found a "focused niche," whether that niche is technological, vertical or geographical.

Regardless of which segment most prospers, the market and the opportunity for investors and cloud computing vendors will continue to snowball, Hill said.

"It's going to accelerate," he said. "What's going to happen is we're going to see some companies continue to have success and need more capital and the stakes are going to get higher. There has been a lot of hype and now's the time to deliver value."

Neovise's Burns agreed.

"Long story short: It doesn't feel to me like we hit that peak yet with funding and acquisitions…," Burns said. "The VCs are out there looking at it and saying 'there are a lot of people moving this way.' They see this huge market that's nowhere near done growing and look for places to invest."