Venture Capital Goes Behind the Web ? HispanicBusiness.com ...

Silicon Valley?s largest venture capital firms are raising their stakes in so-called enterprise companies, which provide behind-the- scene services like software and analytics to business customers. While the spotlight in the latest technology boom has been trained on a cluster of popular consumer applications like Facebook, Groupon and Zynga, investors are increasingly taking a shine to the startups that build the infrastructure for those Internet powerhouses. Silicon Valley?s largest venture capital firms are raising their stakes in so-called enterprise companies, which provide software, analytics and other services to business customers. They are betting that the emerging players in this space, typically considered the least sexy part of technology, will siphon market share from lumbering giants like Oracle, Microsoft and SAP. ?There?s a manifest destiny, and the old guard is slowly being shunted aside, as start-ups eat their lunch,? said Scott Weiss, a partner at Andreessen Horowitz, a venture capital firm whose portfolio includes enterprise players like Box, a data storage service, and Asana, a software maker. The technological and cultural gap between the giants and the start-ups is vast. Enterprise services have commonly featured costly, multiyear licensing agreements, installed software and in- house solutions. But the old model is eroding, disrupted by a new group of Web-based companies that offer their products remotely, through what is known as the cloud. As Internet use explodes, more companies are looking for low- cost solutions that can be installed immediately and scaled up or down rapidly. Access to cloud-based services can be gained by any employee through the Web, and data use is not restricted by the number of on-site servers. and the services are often less expensive because their charges are based on use, rather than the number of licenses. ?Historically, a company may buy some heavyweight software from SAP, put it on an Oracle database and use EMC?s servers,? said Ping Li, of Accel Partners, a venture capital firm. ?But you look at Google, Facebook, they don?t have that stuff ? they need tools with more scale, more flexibility.? Mr. Weiss points to his firm?s investment portfolio. Of about 60 consumer and business-related companies, including Groupon, Twitter and Zynga, not one is a customer of the enterprise giant Oracle. Instead of huge sales forces, the enterprise start-ups often rely on word-of-mouth marketing and free trials to lure customers. Atlassian, a software development and collaboration tool, hit $100 million in revenue without hiring a single salesperson. last year, the company picked up $60 million from Accel ? the venture firm?s largest software investment. ?We are instantly one to many on the Web,? said Jay Simons, Atlassian?s president. The strategic shift is expected to lead to mergers and acquisitions, as the older players, like Microsoft, Oracle and SAP, face pressure. so far this year, enterprise deal-making has risen 82.7 percent in value, to $20 billion, accounting for 14.5 percent of all technology deals ? the highest level since 2003, according to data from Thomson Reuters. In Silicon Valley, the competition for start-ups is also intensifying. last Thursday, Andreessen Horowitz announced it had led a $15 million investment round in GoodData, a Web-based business analytics platform. Earlier this week, Wanova, a desktop management service, raised $10 million and Pure Storage, a maker of high- capacity storage drives, raised $30 million. ?In the next couple of years, our focus on enterprise will increase,? said Ted Schlein, a partner at the venture firm Kleiner Perkins Caufield & Byers, noting that valuations in the area had jumped about 30 percent in the last year. Accel, one of the earliest investors in Facebook, is also ?focusing much more on these ?consumerized? software services,? according to a partner, Richard Wong. GoodData?s chief executive, Roman Stanek, said he had held discussions with 12 venture firms for his latest financing round. In the end, six competed aggressively, before Stanek picked Andreessen Horowitz. ?Enterprise tends to move at a glacial pace,? said Stanek, a veteran entrepreneur who has previously sold two software businesses. ?But the consolidation of the industry is accelerating, and the segmentation is becoming more obvious.? Still, these startups face significant challenges on the way to becoming the next Oracle. Adoption can be slow, since corporations often hesitate to reconfigure big chunks of their technology infrastructure. some have to get over the psychological hurdle of trusting everything to the cloud. As Web-based applications become more robust and reliable, confidence goes up, but services are not bulletproof. Earlier this month, Amazon?s Web Services suffered two failures, which momentarily crippled Internet businesses like Netflix and Foursquare. Despite the hiccups, venture capital backers say they remain confident in this next generation of enterprise names, seeing them as part of a natural development of the Web. as they see it, they are also prime targets for the aging giants or more established upstarts like Salesforce, a $15 billion software company built during the last dot-com boom, and VMware, which has made several cloud-centric purchases this year, including SlideRocket and Socialcast. Like their consumer peers, these start-ups are finding the public markets welcoming. Jive Software, a company backed by Kleiner Perkins, filed to go public late Wednesday. ?In the venture world, we talk a lot about the leading trends in social and mobile but underneath the consumer-facing side, foundational elements are also shifting,? mr. Wong said. ?The new enterprise companies are the picks and shovels that sit behind these consumer startups.?

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Venture Capital Goes Behind the Web ? HispanicBusiness.com

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