Venture capital execs discuss where they see opportunities in the cloud and container space. They believe investors should take a long-term view, not chase hype.
There is no shortage of hype in the cloud and in container technology today, but is there any money to be made in new startups that are now entering the space? That's the question a group of venture capitalists attempted to answer during a panel discussion on Aug. 27 at the OpenStack Silicon Valley event.
Open-source has helped drive developer-led adoption of new technologies in the cloud and, in particular, with containers, said Dharmesh Thakker, general partner at Battery Ventures. Although adoption by developers is a good thing, that doesn't always necessarily translate into an opportunity for an investor.
"The challenge for CIOs is they have to run a business, not run experiments," Thakker said. "Transitioning from a developer-led open-source project to an IT-ready, scalable project that a CIO can run is both the challenge and the opportunity."
With OpenStack, in the early days, the opportunity for some organizations was to use the technology as a form of hedge against VMware, Thakker said. Today, that has changed and OpenStack cloud deployment now is about service-level agreements (SLAs) and making sure that mission-critical workloads will run in OpenStack.
"Transitioning from developer-led adoption to CIO-led adoption is where the real money is to be made, and it's not an easy transition to make," Thakker said.
Thakker added that as a venture capitalist he thinks it's a good thing when there is adoption of an open-source technology, but it's not enough to make an investment decision on. Case in point, he said, is Docker Inc., the lead commercial backer behind the open-source Docker container project.
"Docker has tremendous mindshare, and there is the belief by some investors that mindshare will convert into real dollars at some point," Thakker said. "The jury is still out on that, and it remains to be seen how well they will do."
Vivek Mehra, general partner at August Capital, said that in some cases, venture capitalists will invest in startups that lead to billion-dollar valuations, often driven by the hope that the startup will be acquired. From an investor perspective, hoping for a big acquisition is a risky proposition, he said.
Open source—whether it's OpenStack, Docker or anything else—is a collaborative development and distribution model, Mehra said. He doesn't generally think of open source as a business model. The business model for open-source companies is really tough, though there are opportunities for those with strong service and support models, as well as companies that use open source as a building block for a larger offering.
When it comes to containers, there are a lot of well-funded container startups and there are many people that are now chasing the hype, said Elise Huang, partner at Westsummit Capital.
Chasing hype, however, is not a good way for a venture capitalist to make money, Mehra said.
"A common mistake is when a technology becomes hot, everyone jumps in," Mehra said. By the time a technology is hot, the winners in the space have already established themselves, and if there is already a conference about a certain type of technology, it's usually because there is already an ecosystem for that technology, Mehra said. With containers, specifically, the opportunity now is likely in adjacent areas that will help organizations be successful with deployment and management challenges that will emerge in the next few years.
Fundamentally though, money can be made in making IT more agile in a way that businesses can consume, Thakker said, adding that Docker's success is all about the need for agile IT, which is a good thing, but isn't what CIOs buy or are measured on.
"Ultimately, the CIO is measured on having five nines of uptime and managing costs, as opposed to trying out new technologies," Thakker said.
The operational aspects of technology, in Docker's case, how to monitor and manage containers, is where the real opportunity is, he said.
While there has been no shortage of volatility in the public equity markets recently, that's not necessarily a bad thing for venture capitalists. Thakker said that those in the venture capital business need to have a long-term view and can't worry about day to day volatility, Thakker said.
In the last few quarters, Westsummit Capital's level of investing has slowed as valuations have grown, Huang said. With the recent market volatility, she's hopeful that the market correction will be a positive thing for investors. "Our best investments are made when times are very tough," Mehra said. "When times are good, everyone wants to be an entrepreneur."
Sean Michael Kerner is a senior editor at
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