Day 1 @ Datacenter Ventures

by Robin Harris on Wednesday, 20 September, 2006

When I helped YottaYotta win the “Investor’s Choice” award at Technologic Partner’s Datacenter Ventures in 2001, the conference was packed with VC’s eager to invest in the Next Big Thing. Now, after the dot bust, things are quieter and a heck of a lot saner.

Today, Josh Grove – Senior research analyst at Dow Jones, who purchased Technologic Partners three years ago, opened the conference with a overview of VC investment in the storage and security space over the last five years. I focus on the storage spend.

Datacenter VC investment has been flat at about $2 billion a year for the last three years. You’d think that would fund a lot of startups and you’ be right, except funding has shifted to companies already generating revenue. Startups are getting almost nothing while the
company age at first VC funding is rising to an average of four years. VC’s worry about getting their money back, and having to wait so long for either an acquisition (most likely today) or an Initial Public Offering (IPO) of stock (pretty rare these days) makes them nervous, so they focus on companies with products, customers and revenues, which all take time to develop.

Is Datacenter Innovation Dead?
Not yet, agreed the industry heavies, yet the focus over the next five years will be different. Consumer storage applications will drive much more industry volume, and since volume is king in storage, the economic sweet spot will shift. Part of that shift will be the fact that the emerging economies in India and China can’t afford the infrastructure, including storage, used in the industrialized nations. Export-hungry vendors will figure out ways to produce more cost-effective storage, just as auto manufacturers have developed lower-cost cars.

Another continuing trend: the shift to unstructured (file) data from structured (database) storage. Expect to see more options developed to better meet the growth of file data. One VC observed that he saw the entire security model evolving from making the inside as safe as the firewall, which is darn difficult, to monitoring the network connection to keep sensitive data in. If correct, people will be wondering even more about EMC’s RSA acquisition.

Tomorrow: Coolest Company at Datacenter Ventures Comments welcome, of course.

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