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Cloud Startup Values Are Getting Insane

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Update: Forget the AngelGate controversy and shift your attention to the big-money world of cloud computing and infrastructure startups. While the clashing egos clang in the Silicon Valley echo chamber, massive amounts of money have started to flow into cloud companies at nosebleed valuations, and things are only just getting started.

Here are some of the recent deals and some exclusive details on forthcoming rounds and valuations of some of the better-known cloud and big data focused companies:

  • StorSimple, a Santa Clara, Calif.-based storage company making hybrid storage systems, recently raised $13 million in Series B funding. The company, which has yet to bring in a dollar in sales, is being valued at $50 million.
  • RightScale recently raised $25 million in Series C funding from Tenya Capital, DAG Ventures, Benchmark Capital, Index Ventures and Presidio Ventures at a reported valuation of $100-$125 million. Another source suggests that RightScale’s valuation is even higher.
  • Eucalyptus, a company headed by ex-MySQL CEO Marten Mickos, is said to be valued in excess of $100 million, and raised $20 million in new funding from New Enterprise Associates, Benchmark Capital and BV Capital.

On the big data front:

  • Aster Data recently snagged $30 million in new funding from the likes of Sequoia Capital and a new undisclosed investor. Rumored valuation: somewhere between $85 and $120 million. Update: A company spokesperson took issue with the valuation and emailed me the following statement, which only re-enforces my thesis: “The valuation you/GigaOm stated recently is more reflective of the previous B round that closed Q4 2008, and while we don’t disclose the actual valuation of the latest C round it is in fact materially greater than the Series B.”
  • I’ve heard rumors that Cloudera, the Hadoop-based big data company and one of the all-stars of big data movement, is looking to raise a fresh round of funding and is being valued in excess of $100 million.

My sources tell me a handful of cloud companies are likely to raise a ton of money in the coming weeks. So now you must be wondering what’s going on. There are two forces at work:

From a macro standpoint, the investment industry’s thinking about cloud-based investments has evolved. At our Structure 2010 conference, folks like VMware CEO Paul Maritz (s vmw) talked about the 10-year shift in the IT infrastructure. Early cloud doubters such as Oracle’s (s orcl) Larry Ellison are coming around and rethinking the opportunities being offered by the cloud. The venture capital community is sensing an opportunity and pumping dollars into the sector. But when you zero in, you can see that late-stage investors are willingly investing in companies that already have backing from the cream of the crop venture capital firms, such as Sequoia Capital, Benchmark Capital and Index Ventures.

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10 Responses to “Cloud Startup Values Are Getting Insane”

  1. About time investors saw opportunity in the cloud. This model is here to stay. In 2006 investors were skeptical and dismissed the SaaS model as a minuscule opportunity. The cloud opportunity is still relatively small, the attraction is the rate of growth.

    The investor community like the stock market is ever changing. I recall not long ago, even early stage investor were looking for substantial revenues before committing capital. In 2006, a potential investor indicated that since the infrastructure market for SaaS was huge, the big boys would enter the market, and quash startups.

    I wonder what will happen to the valuation of Rightscale if Amazon or the traditional Systems management companies provide and market similar function as the startup.

  2. I think there is a tremendous movement envisaged in the Cloud as Enterprises ,ISVs and Governments embrace cloud services leveraging the various advantages and benefits. What we are seeing now is a tip of the iceberg and the next five to ten years will change the landscape of Cloud services. Companies such as RightScale and Eucalytus as an enabler of this change and specifically as the early movers may have an edge over others. Perhaps they may be the Next Oracles and Sun’s of the Cloud in the decade or earlier. So,No Wonder, there is a lot of investments happening with valuations at a premium.

  3. les madras

    Oddly, I heard the same refrain from a VC yesterday, with the attendant demands for a sympathetic ear.

    Truth be told, there is little technology involved in these gigs. Combine redundancy-elimination a la riverbed with a firewall, add a dash of encryption and authentication. serve hot.

    The winners will be those who can execute, not the novices given to navel-gazing. Brand money from index or sequoia wont be a factor.

  4. The valuations we’re seeing for the likes of RightScale, Aster, and Cloudera reflect the same theme that drove the recent high-priced acquisitions of Greenplum, 3Par, and Netezza: big data.

    Firms that provide the appliances, software, and services that help businesses cope in the Industrial Age of Data stand to make a mint.

    It will be interesting to see who the winners and losers are when the froth dies down.