Little-Known Cloud Start-Ups Attract Venture Interest

Venture capitalists are increasingly looking to invest in start-up companies that provide complementary services for the Internet ‘cloud’, hoping to get in on the ground floor of a trend that the world’s biggest tech companies are pushing. In these cash-strapped times, many VCs are betting that the future of the cloud – the hosting of services and data on remote computers – will become increasingly popular as corporations look to slash costs and juggle complex data.

Experts say these start-ups will work alongside the likes of Google, Amazon.com and Microsoft, which say they are investing in this concept but warn it is a nascent, rapidly shifting arena. “This is the Wild West,” said James Staten, an analyst with Forrester Research. “This happens every time we get a significant new technology. You get a group of companies that makes it simpler.” The idea of the cloud seems simple enough. Amazon Web Services and its competitors rent time on huge server farms to companies that want to run programs, store data or access databases remotely, without ever having to invest in hardware.

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As companies begin to rely on the cloud to add capacity and manage resources more efficiently, VCs are bankrolling the start-ups that can help them do it safely and easily. For example, Elastra designs and provides solutions to help big corporations manage data centre resources remotely, while Rightscale offers server capacity for smaller start-ups. Others such as Engine Yard, Longjump, and even Google apps and Microsoft’s Azure provide a platform to help programmers write, store, run or distribute their applications.

Kevin Harvey, general partner of Benchmark Partners, said his venture capital firm invested in Rightscale and Engine Yard because they provide essential services. Amazon joined with Benchmark in helping fund Engine Yard, which has now secured $18.5 million in financing. “It makes no more sense for companies to try to hook up to the cloud without such companies than it would for an office to build its own computer,” Harvey said. “Who wants the hassle?” “Rightscale’s primary value proposition to customers is helping them get their applications up quickly and scale them quickly,” he said. “Those are the kinds of things that make cloud adoption easier and faster.”

Managing Overflow

Rightscale often works with smaller start-ups. Michael Crandell, Rightscale’s founder and CEO, cites client Animoto, which makes music videos from digital photos. A year ago the company put its offering on Facebook. “They went viral, adding 25,000 new users per hour for heavy CPU (central processing unit) tasks,” he said. “They went from 50 servers to 3,500 servers in three-and-a-half days.” A few years ago Animoto would have crashed because there would be no way to tack on emergency servers. Rightscale automatically added resources from the cloud. “We are hiring like crazy. We’re looking to double staff this year” to nearly 90, Crandall said.

Elastra takes a different approach, helping larger corporations to manage data centre resources. Running a data centre requires programmers to write all kinds of code, all the time, to deploy applications. Elastra tries to rationalise the process and allow it to be done remotely. For example, it is developing approaches for ‘cloud bursting’, the idea that companies can use remote servers for overflow work.

“Unless you work in a data centre, it’s hard to fathom how many parts of the process are still manual,” argued Ariane Lindblom, vice president of marketing for Elastra. “We are the abstraction layer,” she said. “The problems that we’re tackling span quite a few processes, people and technologies.” (Reuters)