Billion Dollar Unicorns: Cloud Investment Thesis of 5 VCs

Last fall, we had five VCs participate in our 1M/1M roundtables to discuss their Cloud Computing investment thesis. These interviews cover as well as build upon the themes discussed in my two recent books, Billion Dollar Unicorns and Carnival In The Cloud. If you are looking to build a Unicorn company in the Cloud Computing domain, I strongly recommend you listen to these five interviews. In each case, listening to just the first 30 minutes would be adequate.

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Billion Dollar Unicorns: Web 3.0 and E-Commerce Investment Thesis of 3 VCs

Last fall, we had three VCs participate in our 1M/1M roundtables to discuss their Web 3.0 and e-Commerce investment thesis. These interviews cover as well as build upon the themes discussed in my two recent books, Billion Dollar Unicorns and From E-Commerce to Web 3.0. If you are looking to build a Unicorn company in the Web 3.0 / e-Commerce domains, I strongly recommend you listen to these three interviews. In each case, listening to just the first 30 minutes would be adequate.

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Women Entrepreneurs: VC Rejection Does NOT Equal Sexism

I am stating the obvious – or at least what should be obvious – that rejection by a venture capitalist does not automatically equate to sexism. However, of late, the media has started sensationalizing a lot of stories of VC rejection and transposing them as stories of sexism.

These are two different issues, and the cause-effect relationships of the two are ambiguous at best.

In some of these stories, the VCs have exhibited rather stupid behavior, no doubt. However, did they reject the deals because the entrepreneurs were women? I don’t think so. Let’s examine in a bit more detail.
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May 10,000 Cloud Startups Bloom

The cloud services market has fueled a boom of immensely successful startups, most of which have raised millions in venture funding. Take analytics platform company Birst, which started off in the high-end financial sector, raised $64 million in venture capital, and is now growing fast as a regular Silicon Valley-style pre-IPO company. Technology Business Management solutions provider Apptio raised a $7 million series A to get started and within the year got to $6 million in annual recurring revenue. Its customers include 29 of the Fortune 100 companies and has to date raised a whopping $136 million.

Business analytics provider Adaptive Insights raised $100 million in funding and has over 2000 customers. Huddle, enterprise collaboration service provider, raised $38.2 million in funding and now has close to 80 percent of the Fortune 500 as clients. Email marketing company iContact bootstrapped for three years to $1 million using services and then raised $53.4 million in three rounds. They eventually got acquired for $169 million. Mobile website maker DudaMobile bootstrapped using a paycheck and then went on to raise $18.6 million.

However, not all cloud startups have gone the heavy funding route. There are many under-the-radar cloud/SaaS startups that are also developing as bootstrapped businesses. Analytics company DataSong has bootstrapped all the way—for 11 years—and expects to do $6.5 million in revenue in 2014. Another such company in our 1M/1M premium program is Happy Grasshopper, which has chosen to bootstrap so far, and is approaching a $3 million run rate in 2014.

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How To Navigate The World of ‘Fat Startups’

In the Unicorn series, I have so far written about Tableau Software, FireEye, and RightNow. Of these, while Tableau and RightNow have followed Lean Startup principles, FireEye is definitely what I call a ‘Fat Startup’ that required a lot of early funding to get to market.

While it is true that these days, we focus a lot more on lean startups than startups that require capital to get going, fat startups still play an important role in developing large-scale success stories with significant defensible competitive advantage. In the FireEye article, we saw how Ashar Aziz has used cross-domain innovation to build a business that has scaled to an over $3 billion market cap.

The bulk of the industry has moved away from the ‘fat startup’ category. Investors expect that you will have your product launched, customer acquisition model fleshed out fully, and a team in place before Series A.

However, infrastructure software, hardware, networking, chips – they need capital. Even in cloud software, to build complex technology like personalization and analytics requires some serious investment.

While in the 1M/1M program, we steer people mostly along lean startup paths, I have pondered and investigated the question: How do people fund ‘fat startups’ these days?

I am seeing a few trends:

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1M/1M Premium Company Freshdesk Raises $31 Million From Tiger Global and Google Ventures

We just did a roundup of the CloudCRM space, covering Zendesk’s successful IPO and predicting that the space is heating up, and more acquisitions will follow. Our premium company Freshdesk is definitely a key target!

Today, Freshdesk announces its new round of funding of $31 million led by Tiger Global, with Google Ventures and their original investors, Accel Partners, following. This brings their net funding to $44 million. The latest round is priced at $250 million. The company currently has 23,000 customers.

As always, big funding news creates big media coverage. Here’s what they’ve got so far: NYT, TechCrunch, VentureBeat, Forbes, Wall Street Journal, and quite a few others. I cannot emphasize how important this company is to underscore and celebrate India’s quest to build global software companies.

Here’s our prior coverage of the company:

The Million Dollar Club: Freshdesk

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Ownership Matters: How To Maximize Valuation

In an earlier Unicorn series article, I profiled Tableau Software, and how the company raised its Series A financing at a pre-money valuation of $20 million. In this piece, we look at RightNow. Series A valuation? $130 million. This piece is an excerpt from my book:Entrepreneur Journeys: Bootstrapping: Weapon Of Mass Reconstruction.

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Starting Unicorn Companies: FireEye

In this series, I look at some of the ‘unicorn’ companies that Aileen Lee with Cowboy Ventures identified in her article, Welcome To The Unicorn Club: Learning From Billion-Dollar Startups. In it, she offered a list of companies that have had billion dollar exits, and analyzed some of the common threads. We will explore the early stage entrepreneurial jouneys of these Unicorn companies, as well as some others that I know well.

We started the series with Tableau Software and continue on today with FireEye, further elaborating on the general theme of cross-domain innovation.

Christian Chabot, CEO of Tableau, says: “They say that the greatest innovations are born from strange bedfellows.” FireEye’s founder Ashar Aziz found his sweet spot at the cusp of virtualization, networking and security, two industries that he had insights into, and that generally, did not talk to each other. “What we do is a combination of very deep system level work in virtualization and operating systems, as well as network-level packet processing,” Aziz says.
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