How is cloud computing disrupting the VC industry?

Terry,
I agree with the statement that cloud is reshaping all industries. There are a whole lot of things going on that are all labeled “cloud” that directly lead to the observations you cite. This is misleading because there is no “cloud,” there is a convergence of virtualization, automation, management, and operations that create a model that enables convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.

As far as providing entrepreneurs information about how much funding can be raised, there is no question that the general use of social networking, which is deployed in “the cloud,” provides a global forum where the free exchange of information gives everyone access to more information than they have ever had. This site is a great example of the cloud concept of Software as a Service (SaaS). If you looked on LinkedIn, another SaaS application, and search groups for the word “venture,” there are 1,967 hits. If you monitor these forums, questions about which ideas get funded, how much money can be raised, where it can be raised, and the best way to present requests for funding appear daily. Although I never believed that the VC industry intended to keep this information secret, the ability of entrepreneurs to understand VC processes, language, and expectation has had a positive effect on the market overall; entrepreneurs are less frustrated because they are coming closer to meeting VC expectations earlier in the process, and VCs are seeing higher quality presentations and proposals.

As far as how applications are developed, cloud is the ability to acquire and operate on virtually unlimited world-class infrastructure within minutes, and, this is key, only pay for them while you are using them. Why build an email infrastructure when I can acquire it from Microsoft or Google for $5 per user per month? Why buy platforms to develop software on when I can rent them from Amazon for $0.10 per hour? Why but storage when I can lease it for $0.15 per GB per month? Because of the cloud offerings, companies in all stages and sizes can develop and innovate faster and at much less cost than with traditional acquisition models, meaning less cost and risk for VCs, which is good for both the entrepreneur and the VC.

So although cloud is a nascent model and there are certainly challenges ahead, the cost of maintaining traditional approaches, especially for start-ups, can no longer be justified. Faster time to market, less capital investment, on demand scalability to meet requirements, and lower overall risk have changed forever how technologists must architect and evaluate their computing models. VCs recognize this, and are adjusting their investment models to account for these reduced costs. From my perspective, this is win-win and it is a unique and exciting time to be in the market!

Bill Perlowitz