How Long Will VCs Fund Cloud Computing Companies?

How Long Will VCs Fund Cloud Computing Companies?

A technology paradox continues to unfold before our eyes. On the one hand, the cloud computing market continues to grow and thrive -- attracting new investors, customers and partners every day. But on the other hand, I believe we're living in a cloud computing bubble. When it pops, dozens -- perhaps hundreds -- 0f cloud computing vendors will go bust and their partners will be forced to pursue alternative options.

But when will the cloud really go pop? Back in Q2 2011, Talkin' Cloud witnessed a major correction on Wall Street that knocked down cloud computing valuations. However, cloud stocks have generally rallied over the past three to six months. Cloud stocks are already up nearly 6 percent since the start of 2012. And venture capitalists continue to pump money into cloud computing companies.

Joyent Cloud Services Platform

The latest example: Joyent, which makes cloud platform software for cloud services providers (CSPs), has received $85 million in new funding. Joyent claims its SmartDataCenter platform offers carrier-grade services to optimize utilization rates, performance, scalability and security.

True believers include LinkedIn, Gilt Groupe and Kabam, each of which run their clouds on Joyent.

How long will venture capitalists continue pumping money into Joyent and other cloud computing-focused companies?

The short answer: It looks like VCs are starting to invest their dollars in fewer companies. In Q4 2011, VCs pumped money into 844 companies, down from 861 companies in Q4 2011, according to the MoneyTree Report, a study conducted by PriceWaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

According to the Associated Press's analysis of the report:
"Venture capitalists piped $133.9 million into 80 seed-stage companies in the fourth quarter. That’s down from $233.2 million going to 90 such startups in the fourth quarter of 2010. The decline suggests some caution on the part of venture capitalists looking at the newest, often most risky, startup investments."

Still, I suspect VCs will continue to pour money into cloud computing and mobile computing for at least the next decade. In the 1980s and 1990s, VCs focused most of the software platform dollars on client-server and then Internet start-ups. Now, the cloud computing wave is all the rage -- though I'm sure we'll see plenty of VC-backed cloud companies drown in all the hype.

TAGS: Financing
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