Friday, October 10, 2008

VC Market in Trouble? Not in the cloud.

The latest buzz today is that the VC world is doom, or at the very least the companies they invested in are doomed. The general consensus is that VC's are going to stop investing in early stage pre-revenue companies.

Well not according to what I'm hearing. In a conversation this morning with a notable Boston area VC, he said Venture capital is based on the idea of investing in companies who are not going to be cash positive for "a while" and need VC money to help become sustainable and eventually bring in a hefty return on their investment, this hasn't changed regardless of the market conditions. What has changed is the ability for VC backed companies to go out and sell. The tough market means that lot of companies are not able to close deals, or potentially get paid for the deals they have closed. (Not getting paid because of the credit crunch is a new phenomenon)

He went on to say that some of the most successful companies to emerge over the last decade have done so by establishing themselves out of the ashes of some of the biggest periods of economic uncertainty. Look at BladeLogic, they raised their first round days before September 11/01 and are one of the biggest VC exits this year with-in the infrastructure management space. In my conversation with Vijay Manwani a few weeks back he said the previous down turn was one of the best things to happen to bladelogic, it offered them the ability to hire some of the best and brightest as well as focus on building a world class business, so when the markets rebounded, they were in the best possible position to capitalize on the new opportunities. (Which they did)

So am I concerned about my business's ability to remain an independent, self funded company? Certainly. The real question is do I want my company to remain self funded or better yet, should it? I think the answer is no. Luckily I am also seeing no reduction in the amount of VC's calling me on a daily basis. 5 so far today.

The math is simple.
In tough economic periods, the amount of money spent on capital expenditures goes down, this is obvious. But the need to access infrastructure still remains. Cloud computing is an ideal way to reduce you CAPEX while continuing to leverage others infrastructure. The hybrid cloud model makes sense.

Ultimately this so called down turn may end up being a boon for cloud computing, one that I hope to continue to ride for the foreseeable future.

#DigitalNibbles Podcast Sponsored by Intel

If you would like to be a guest on the show, please get in touch.