Blog Post

VCs will fund more software-defined networking startups as enterprises sit on the sidelines

“Just because it’s very early in this market doesn’t mean it’s too early to start an SDN company. It’s always too early before it’s too late.”

There was Shirish Sathaye, a general partner at Khosla Ventures, calling out at this year’s Open Networking Summit on Tuesday for more software-defined networking startups for him and others to fund. His firm saw the promise of Big Switch Networks a couple of years ago. It seems the hunger for SDN companies to back has not fallen away. It’s not particularly surprising in this golden age of enterprise IT, in which VCs are hunting for enterprise plays following the rise of SDN and other disruptions.

While the other side of the coin is that production-scale use cases from enterprises are still hard to find, managed-hosting service providers have been quicker to try out the benefits of SDN. After all, those companies can improve their bottom lines by rolling out new services and potentially lowering capital and operational expenditures. But the enterprises have looked more hesitant to dive in and see what’s possible.

That level of market penetration — where large data centers and Wall Street banks give SDN a shot — could happen in 2014 or 2015, said Paul Santinelli, a partner at North Bridge Venture Partners who has backed Embrane.

Rather than present software that can impress network administrators, the key for investors is whether SDN startups can solve real business problems, said Alex Benik, a principal at Battery Ventures. “I think it’s kind of incumbent on the community to work together to not overpromise and underliver on what SDN can deliver on a reasonable time scale,” Benik said. That delivery, he said, is not coming right away, but more like the end of this year and throughout 2014. With SDN code on the way from the OpenDaylight Project, founders that have been working on open controllers and other components in stealth mode could now be pivoting, so VCs might have to wait a while for the most promising SDN solutions.

One Response to “VCs will fund more software-defined networking startups as enterprises sit on the sidelines”

  1. A couple of points:
    – Would you believe that the number of companies that self-associate with SDN (either for product or marketing reasons) has gone from near 0 in 2009 to more than 225 today (using SDNCentral members as a proxy)? That’s just insane.
    – I think we will see adoption of SDN accelerate where it is used to drive new revenue (service provider edge use cases, for example). It is easier to justify a new technology when it is driving top-line dollars.
    – The bottom-line savings will be a consideration, but folks will wait until the technology is a bit more mature before they try to capitalize on that. Indeed, clunky implementations could make chasing opex savings more expensive in the short term.
    – That said, SDN as a selection criterion (meaning it shows up on the RFP) should drive purchasing decisions in the short term. When we looked at this with SDNCentral, we estimated this could drive up to $35B on the high end in revenue by 2018 (full data here:

    Mike Bushong