Jerry Chen & Jason Risch | Top-Funded Cloud Markets | Summary and Q&A

TL;DR

VC funding for cloud startups reached $50.3 billion in 2021, with the top markets being security, AIML, management and governance, and devtools. Edge computing is also seen as a promising emerging market.

Key Insights

• 😶‍🌫️ VC funding for cloud startups reached $50.3 billion in 2021, indicating the continuous growth and opportunities in the sector.
• 😶‍🌫️ The top markets for cloud startups are security, AIML, management and governance, and devtools, with significant funding and growth.
• 😶‍🌫️ The big three cloud providers (AWS, Azure, GCP) have expanded tremendously within the cloud market, but startups still have opportunities to compete and collaborate.
• 👊 Security remains a critical focus area, with increasing cyber attacks driving investment and the need for innovative solutions.
• 😶‍🌫️ AIML customization and tying ML models to business value present attractive opportunities for startups to compete with cloud providers.
• 😶‍🌫️ Management and governance tools that provide businesses control and accountability over their cloud usage have gained investor interest.
• 😶‍🌫️ Cloud cost management is a top priority for businesses, creating opportunities for startups to help customers estimate and control cloud costs.
• 🙈 Devtools companies have seen significant growth, focusing on areas like CI/CD and abstracting away infrastructure to enable engineering resources for product development.

Transcript

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Questions & Answers

Q: What were the top markets for cloud startups in 2021?

The top markets for cloud startups in 2021 were security, AIML, management and governance, and devtools. These markets received significant VC funding and showed strong growth potential.

Q: Why is security a lucrative market for cloud startups?

Security is a lucrative market for cloud startups because the cloud presents increased security risks compared to on-prem systems. The potential for cyber attacks is larger, and traditional security teams often struggle to understand and address these risks. Startups focusing on threat detection, vulnerability management, and identity and access management have seen significant funding and growth.

Q: What opportunities are there for startups in AIML?

AIML is a category with many unicorns and significant funding in the startup ecosystem. Startups have the opportunity to customize AIML models to specific businesses and use cases, competing directly against the big three cloud providers. Startups focused on model development, data, and specialized domains like NLP have seen success and are poised for further growth.

Q: Why is edge computing an emerging market with growth potential?

Edge computing, which involves storage and compute on the edge, has shown potential for growth and innovation. It enables industries like gaming and IoT to improve instance response times and deploy AI models closer to devices like cameras. Technologies like WebAssembly (WASM) are also driving growth in edge computing, offering impressive capabilities for browser-based applications and beyond.

Summary

In this episode, Greylock investors Jerry Chen and Jason Resch discuss the analysis of venture capital funding into cloud startups. They highlight the top markets for startups, including security, AIML, management and governance, devtools, and edge computing. They also discuss the growth and opportunities in each of these markets, as well as trends and predictions for 2022.

Questions & Answers

Q: What are the top markets for cloud startups?

The top markets for cloud startups are security, AIML, management and governance, devtools, and edge computing. These markets have received significant venture capital funding and present opportunities for startups to thrive.

Q: What factors contribute to the growth of the security market for cloud startups?

The potential security risks associated with the cloud, such as increased surface area for attacks and the lack of understanding by traditional security teams, have led to a rise in investment in security companies. The number of cyber attacks on corporate networks has also increased, driving the need for security solutions. In 2021, security startups received $7.5 billion in VC funding, and subcategories like threat detection and vulnerability management saw significant investment.

Q: What trends are expected for security startups in 2022?

Strong valuations are expected to persist for security startups, even in volatile market conditions. The tailwinds behind the security market remain strong, with both public and private security companies outperforming software counterparts. The rise of automation and security engineering, as well as the need for prioritization and context in addressing security risks, present opportunities for startups to differentiate themselves in the market.

Q: How does AIML customization present opportunities for cloud startups?

While the big cloud providers have proprietary data sets and end-to-end platforms, the need for customization and tying AIML models to specific businesses and use cases has created opportunities for startups. AIML is the category with the most unicorns in the database, and startups in areas like model development, data, and NLP have received significant funding. Startups that provide tools to make models easy to deploy, engage communities, and specialize in domain-specific areas are competing against the big cloud providers.

Q: What opportunities exist for startups in management and governance?

Tools that give businesses control and accountability over their cloud usage have attracted investor interest. These tools align with trends like increased data management and protection, rising ESG expectations, and the need for cost management. Startups providing backup and disaster recovery solutions, helping with risk mitigation and data protection, and enabling cost control and optimization have received VC funding.

Q: What is the potential for startups in the edge computing market?

Edge computing, which involves storage and compute on the edge, presents opportunities for startups in areas like gaming and AI models deployed on the edge. Startups that make WebAssembly (WASM) easier to use and harness its capabilities for applications have the potential to emerge as unicorns. Companies like Figma and Cloudflare have already demonstrated the power of WASM in improving load times and latency.

Q: What trends and predictions are expected for cloud startups in 2022?

While aggregate VC funding in 2022 is showing signs of slowing down due to public market contraction, the cloud transition in the enterprise sector is not expected to revert or decelerate. Seed funding valuations remain strong, and standout private cloud companies have the potential to go public once the public markets settle. Opportunities to compete against the big three cloud providers and the secular growth of the overall cloud market continue to attract investment.

Takeaways

Venture capital funding into cloud startups has seen significant growth in 2021 and the first quarter of 2022. The top markets for startups include security, AIML, management and governance, devtools, and edge computing. These markets present opportunities for startups to compete with and collaborate with the big three cloud providers. Trends in these markets include the rise of automation and security engineering, customization of AIML models, tools for management and governance, and the potential of edge computing. Despite some signs of slowing down in VC funding, the cloud transition in the enterprise sector remains strong, and opportunities for startups in the cloud market continue to be promising.

Summary & Key Takeaways

• VC funding for cloud startups hit $50.3 billion in 2021, showing the continued growth and opportunities in the sector.

• The top markets for cloud startups are security, AIML, management and governance, and devtools, with significant funding and growth.

• Edge computing is an emerging market with potential for significant growth and innovation.