Venture capital firms. Start-up companies. Mergers and acquisitions (M&A). Those were the hot topics of discussion at VMworld 2011 between SiliconANGLE founder, John Furrier, Pete Sonsini of NEA (New Enterprise Associates), and Charles Curran from Valhalla.
Curran opened the discussion on PaaS (platform as a service) market by stating, "One of the big themes is the rise of the service provider. The efficiency of the cloud is running storage at 95% utilization rates versus 10-20% on legacy boxes, so if you're running a VAR (value-at-risk) today and you're not transitioning to be a MSB (money service business), I think you're in trouble. The rise of the service provider is the big theme we're investing in as a cloud venture business."
Furrier asked if venture capital firms consider the M&A equation when they're looking at start-ups. Sonsini said, "Absolutely. You've got to make investments . . . and believe they're going to go on to be big companies. As a venture investor, particularly one like NEA, which . . . makes our returns off a few very extraordinary outcomes, you've got to think about building companies for the long haul."
Furrier asked who they thought the next M&A target was. Sonsini weighed in first by saying platform as a service was certainly on the radar, but also, the two big areas that really need to be exploited are storage and networking. He went on to say that he believes the incumbent players in those categories cannot respond to the architectural changes and requirements of the networking and storage in line with what virtualization is bringing; therefore, they're going to have to pay huge premiums to get into this market.
Curran added his thoughts as well. "Nimble is one of the hottest companies -- they're doing sort of an equilogic plus data domain plus SSD for the mid-market. They have a world-class team for data domain and NEA company and NetApp. I think that's the type of innovation and disruption that the big companies who ultimately own most of the customers are going to need to acquire to get their mid-market business to the next level. "
Furrier asked if SSD is in a bubble. Sonsini thought that while valuations are high, there would only be a few multi-billion dollar companies coming out of the six to twelve companies that are currently pursuing this market, naming Nimble, Trintri and Solidfire as established start-ups getting close to product. Curran firmly believes SSD is not a bubble. He described from a macro perspective that SSD is going to take massive market share from mechanical disk, and cloud because of 95% utilization rate is going to take massive market share from legacy refrigerators. He explained there's a $40-$50 billion dollar market cap that will be held mainly by the big name companies, such as EMC, VMware and NetApp, but that's also the outcome the start-ups are playing for. So although it looks crazy to pay hundreds of millions of pre-money for a company with peanuts for revenue, if they're building the next NetApp or even if they have a 10% chance of building the next NetApp, it's not so crazy.
Furrier asked if big storage vendors HP and EMC are running the risk of becoming one big back-up farm and if these new players will steal their market share. Sonsini responded, "I think they're going to continue to innovate . . . but I don't think they can respond and change their products and their go-to-market as much as is needed to really meet the needs that are emerging today." Curran's opinion was that HP and IBM are at risk, but that big banks prefer to buy from IBM, HP, and EMC, rather than from the start-ups. They're not driving innovation, but they own the customer.
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Pete Sosini, NEA and Charles Curran, Valhalla | VMworld 2011
Venture capital firms. Start-up companies. Mergers and acquisitions (M&A). Those were the hot topics of discussion at VMworld 2011 between SiliconANGLE founder, John Furrier, Pete Sonsini of NEA (New Enterprise Associates), and Charles Curran from Valhalla.
Curran opened the discussion on PaaS (platform as a service) market by stating, "One of the big themes is the rise of the service provider. The efficiency of the cloud is running storage at 95% utilization rates versus 10-20% on legacy boxes, so if you're running a VAR (value-at-risk) today and you're not transitioning to be a MSB (money service business), I think you're in trouble. The rise of the service provider is the big theme we're investing in as a cloud venture business."
Furrier asked if venture capital firms consider the M&A equation when they're looking at start-ups. Sonsini said, "Absolutely. You've got to make investments . . . and believe they're going to go on to be big companies. As a venture investor, particularly one like NEA, which . . . makes our returns off a few very extraordinary outcomes, you've got to think about building companies for the long haul."
Furrier asked who they thought the next M&A target was. Sonsini weighed in first by saying platform as a service was certainly on the radar, but also, the two big areas that really need to be exploited are storage and networking. He went on to say that he believes the incumbent players in those categories cannot respond to the architectural changes and requirements of the networking and storage in line with what virtualization is bringing; therefore, they're going to have to pay huge premiums to get into this market.
Curran added his thoughts as well. "Nimble is one of the hottest companies -- they're doing sort of an equilogic plus data domain plus SSD for the mid-market. They have a world-class team for data domain and NEA company and NetApp. I think that's the type of innovation and disruption that the big companies who ultimately own most of the customers are going to need to acquire to get their mid-market business to the next level. "
Furrier asked if SSD is in a bubble. Sonsini thought that while valuations are high, there would only be a few multi-billion dollar companies coming out of the six to twelve companies that are currently pursuing this market, naming Nimble, Trintri and Solidfire as established start-ups getting close to product. Curran firmly believes SSD is not a bubble. He described from a macro perspective that SSD is going to take massive market share from mechanical disk, and cloud because of 95% utilization rate is going to take massive market share from legacy refrigerators. He explained there's a $40-$50 billion dollar market cap that will be held mainly by the big name companies, such as EMC, VMware and NetApp, but that's also the outcome the start-ups are playing for. So although it looks crazy to pay hundreds of millions of pre-money for a company with peanuts for revenue, if they're building the next NetApp or even if they have a 10% chance of building the next NetApp, it's not so crazy.
Furrier asked if big storage vendors HP and EMC are running the risk of becoming one big back-up farm and if these new players will steal their market share. Sonsini responded, "I think they're going to continue to innovate . . . but I don't think they can respond and change their products and their go-to-market as much as is needed to really meet the needs that are emerging today." Curran's opinion was that HP and IBM are at risk, but that big banks prefer to buy from IBM, HP, and EMC, rather than from the start-ups. They're not driving innovation, but they own the customer.
