Venture capitalists and Investors wonder how soon their heavy investment in cloud computing will start to pay off.
The innovation coming out of the cloud computing market has made infrastructure startups interesting to venture capitalists again. Despite our excitement over the potential of cloud computing to transform IT, however, weighing on the minds of many in the VC community is what sort of time frame we should expect for exits. To put it more bluntly, we want to know when it’s going to rain!.
The hype surrounding cloud computing is creating upward pressure for the industry to produce rainmakers.
In order for a cloud computing company to make it rain, there needs to be evidence that it has the potential to take a market by storm. After talking to a number of large incumbents that could be acquirers of cloud startups, the key items that would drive them to an acquisition are:
Rapid customer growth Solid evidence of nonlinear customer growth. Not every cloud needs to grow like Facebook or Salesforce, but it needs to be growing—quickly.
Sustained revenue growth Monetization of the customer growth. Even Twitter has a monetization strategy now, and acquirers are looking for clouds that are accretive to revenues.
Widespread use Adoption in multiple geographies shows that the cloud is not a one-market player but can scale to a global level.
Consider Slicehost. It was acquired by Rackspace after just two years of operations, during which its user base grew to over 15,000 from nothing. Such rapid customer growth, combined with strong business metrics and hosting services that were complimentary to those of Rackspace made clear the value proposition of buying Slicehost. And Rackspace got a great deal — the combined purchase price of Slicehost and another acquisition announced at the same time, Jungle Disk, was around $11.5 million.