Cloud Computing Companies: a small sample

After looking at the companies presenting next week at the Under the Radar conference, “Commercializing the Cloud”, it can easily be seen which categories are getting most of the attention. Most of the companies, about 40%, are offering data management solutions for cloud computing environments. The solutions offered are not all exactly the same as some companies, such as AwayFind, specialize in email search. Others, such as Neo Technology, focus more on the database itself.

The next largest category, with 27% of the companies, is Performance Management. I feel though this category might be slightly under-represented as performance in cloud environments is a big issue. When you add the fact that most environments are hybrid then the problem gets even worse.

I was surprised, however, to see that important categories such as security are completely missing. There are interesting companies looking at this problem which will become significant as one company’s security vulnerabilities will be the risk for the rest of the companies using the same underlying hardware.

It will be interesting to see how this distribution evolves in future cloud computing events.

Why it’s good to have VCs to pull the plug

About a week ago I had an interesting conversation with a friend whose startup was being shut down by the VCs. As you can imagine, he was complaining and blaming them for not being able to see that success was just around the corner…

It might sound crazy that having been an entrepreneur I am now advocating for VCs to pull the plug when needed. It will make more sense after this story…

When I started my company in 1999 we raised a seed round for a social networking platform (we called them virtual communities at that time) and used the money to build the technology. In 2000 it was impossible for us to raise more money for a company that had no revenue and not even a clear path to profitability. However, instead of shutting down, we used the technology and re-invented the company focusing on the e-learning market. Some revenues started coming in but the growth rates were not there and we kept on raising small amounts of money to get to the “end of the rainbow”. We always had some “major contract” coming in the next 6 months that was expected to turn around the company. The contract never came.

After running the company for 8 years I decided to step out of operations. Looking back, it would have been great to have a VC pulling the plug early on. I didn’t have the experience and was not capable of detaching myself emotionally to make the best business decision. The same happens when early hires are not capable of performing their jobs at a much larger scale: few founders have what it takes to fire them. It feels like when parents tell their kids they will only understand them when they grow up…

Having said that, not always VCs pull the plug for the right reasons, but, as an entrepreneur, I can assure you it helps to have a sounding board helping you pull the plug whenever it is the best business decision. You’ll see, you'll understand when you grow up!

How the iPad can become Apple’s Trojan Horse into the Enterprise Market

There’s been a lot of talk about how Apple’s iPad could potentially be a Trojan Horse to get into consumers’ living rooms. That comparison makes sense as big players such as Sony and Microsoft have tried to penetrate that huge market opportunity when everyone is talking about convergence but smaller companies such as TiVo have been significantly more successful.

It is interesting, however, to think about how the iPad might become Apple’s stepping stone into the Enterprise Segment. Recently with the announcement of iPhone OS 4 Apple announced support for features as multitasking, folders, support for mobile device management, Exchange 2010 and SSL VPN.

The iPad itself won’t be a game changer in the Enterprise Market, however, the ecosystem that the iPad will generate might become a huge force for future Apple devices. The iPad is designed to leverage the growing cloud computing solutions, as storage and performance are definitely not iPad’s competitive advantages. The device, simple to use, will get consumers more familiar and comfortable with storing valuable information in the cloud, which will eventually solve one of the major adoption barriers for cloud solutions in the enterprise market.

Additionally, if Apple manages to build the cloud ecosystem around the iPad with the same intuitive and easy-to-use approach that characterized its devices such as the iPod, the iPhone and the iPad itself, it could leverage it by introducing devices specifically designed for enterprises. Furthermore, Apple won’t need to introduce new devices for this market (even though we all agree they are great) as they could profit from managing the ecosystem which will definitely be a less commoditized segment, giving startups opportunities to fill in the gaps.

It is still to be seen how Apple builds the ecosystem to support the iPad and if it will succeed with its closed standard approach as it did with iTunes. I foresee great opportunities for smaller dynamic startups anticipating this wave and developing applications and devices to leverage Apple’s marketing efforts.

Due Diligence: Where Art Meets Science

I had an interesting conversation with a group of venture capital friends about due diligence. We talked mainly about early stage IT companies and for almost an hour we couldn't agree on the profile of the perfect process. About half of the group argued that the most effective due diligence is the one conducted by a highly analytical person, while the other half believed that most of the red flags could be uncovered only by polished interpersonal skills.

We analyzed some data and shared our experiences about deal-breaking facts we uncovered conducting due diligence and how we came across them.

Analytical

• Looking at the financial model the company was expected to grow to more than 100% of the TAM… deal-breaker
• When sensitivity analysis was done the projected growth was extremely sensitive to a variable that was extremely out of line when compared to industry standards… deal-breaker

Inter-Personal

• A relaxed lunch/dinner with the entrepreneurs revealed they were looking for funding to build a lifestyle business… deal-breaker
• When talking to potential customers that were not on the reference list the solution proved to be more of a vitamin than an aspirin… deal-breaker

There was still not consensus at the end of our conversation so we decided to move on and talk about something less controversial, such as politics and religion…

After thinking about the issue for a while, however, I can say that it is not a question of either/or. A thoughtful due diligence, focused on revealing the true risks and opportunities of a startup, needs to be both: an art and a science. The science needs to understand the financial model, total addressable market, sensitivity to critical parameters, etc. The art, on the other side, needs to focus on understanding who the entrepreneurs are, what do they want, who the customers are and why they are willing to pay for the company’s solution, among others.

You can have extensive checklists to follow, but at the end, if you don't master the art and science required to conduct sound due diligence, you can jeopardize what matters most to you and the firm you represent: reputation. Don't forget that even though you might uncover deal-breaking red flags in your process you still need to be respectful of the entrepreneur's work, passion and dedication. It might take a couple of tries but eventually they could figure it out and you want to be there to support them. You will only accomplish this if you do your job with a long term vision of building a network and protecting your reputation.