Silicon Valley Cloud Entrepreneurs Still Picking Up the Funding

November 24, 2011 Off By David
Grazed from Business Cloud9.  Author: Stuart Lauchlan.

Venture funding for entrepreneurs in Silicon Valley remains buoyant and plentiful – once you get beyond a certain point and if you have the right idea in the Cloud.

The past few weeks have seen two US Cloud Computing start-ups – Marketo and Zuora – raising further rounds of funding that will be used in part to fuel their expansion into Europe. (Both announced their new funding while their CEOs were on visits to London.) Marketo, which set up its European HQ support centre in Dublin this year, has secured $50m in new venture financing, led by Battery Ventures…

The entirety of the new $50m investment is primary capital into the company. In total, Marketo has raised $107m since it was founded in 2006. Marketo founder and CEO Phil Fernandez says:   

“Cloud is still getting funding, it’s a very bullish market. We are seeing such growth signals from the market. It took me six months to raise the first $3m and it took six days to raise the last $50m. That’s a pretty interesting tale. ”
 

Marketo, which provides revenue performance management (RPM) solutions to fuel fast-growth companies, earlier this year launched Spark, a version of its offering specifically targeted at providing marketing and revenue automation into a customer base that has traditionally regarded technology solutions as prohibitively costly.

Meanwhile another Silicon Valley relative newcomer Zuora picked up $36 million in a round of funding led by Index Ventures with follow-on investors Greylock Partners, Benchmark Capital, Redpoint Ventures, Shasta Ventures and Tenaya Capital. There are also two personal investors: Marc Benioff, CEO of Cloud customer management giant Salesforce.com and Dave Duffield, CEO and founder of human resource management Cloud firm Workday – both veterans of Silicon Valley’s tech hierarchy.

Since it was founded four years ago, with funding from Salesforce.com’s Benioff, Zuora has raised $82.5 million, the firm has expanded rapidly with its billing system for firms built on a subscription business model, like hi tech firms, publishers and telcos. The firm has a number of major European customers, such as News International, and plans to use the new funding to expand its European footprint.

But while there is money still to be invested, early stage funding can be harder to come across. This was a Series D round of funding for Zuora. Tzuo agrees that Silicon Valley investors are wary of Series A funding at the moment, but argues that seed funding is still there for start-ups:   

“You can get funding for $50k or $100 as pocket money to try out an idea. But you have more and more companies looking for that money and trying to get into the same pool. What is happening now with Cloud Computing is that it is so easy to start up a company. You get some Amazon developers in and you launch a company. What that means is that the competition is really high. You’re competing with 50 other guys who didn’t exist a short time ago. To cut through the noise and the chatter, you need to have something that will differentiate you.”
 

The first generation of Cloud Computing applications firms – such as Salesforce.com, NetSuite and SuccessFactors – all passed through the venture funding rounds and made it through successful IPOs. In the current economic climate the floatation prospects for the next generation is in flux, but some firms are edging closer.

Workday last month picked up $85 million in Series F funding from institutional investors, including Bezos Expeditions, the personal investment company of Amazon’s Jeff Bezos, Morgan Stanley Investment Management, Janus Capital Group, and T. Rowe Price. Series F funding is unusual and Wall Street watchers have taken it as a sign that the firm is readying itself for a 2012 IPO.

The levels of funding being picked up by the Cloud next generation suggests that there is still life for hi-tech start ups in the Valley and rich pickings for the silicon entrepreneurs. But all those numbers pale in comparison to the current investor obsession with Cloud content management firm Box.net which recently scored another round of funding to the tune of $81 million – after deciding to reject a $600 million takeover by Citrix.

Box.net is the real Silicon Valley dream story a la Hewlett Packard and Apple’s ‘two guys in a garage’ format. This time it’s 26-year-old Aaron Levie and 25-year-old Dylan Smith who launched Box.net from Levie’s college dorm room and now run a company with investors including Salesforce.com and German software giant SAP.

It’s an astonishing story – one that sadly doesn’t crop up on the UK tech scene too often – but ultimately it’s all about the idea. For every Box or Zurora, there are a hundred and one firms who don’t win funding.

The appetite for investment is still there though, insists Marketo’s Fernandez who founded his current firm after selling his previous company, software giant Epiphany, and deciding to start again. He declares:   

“The whole entrepreneurial thing is in my blood. Clearly traditional venture has almost no early stage risk appetite right now. Five years ago when we went down Sand Hill Road [home to Silicon Valley investors], we didn’t get an investment profile even with all the ins that I had. We weren’t in the next big social media space so there wasn’t the interest. Sand Hill has the same mentality it always has of money goes where money is. But while it’s harder to raise money if you already have backing, it is easier to get some substantial build and to market quicker. If you build on open source and build in the Cloud, then you can get a product to market at a much lower cost. Really, if you’re coming up with a new application today, it has to be built as Cloud. ”
 
 
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