Venture Capital: Who is Funding Cloud Computing Firms?

Cloud Computing is the Future of Business. What is This Technology? How Can Canadian Start-Ups Find Funding?

Cloud Computing Funding Can be Hard to Find

Cloud service providers have cropped up in the last few years in Canada, the United States, and beyond. Though many American cloud service start-ups have received the most attention, successful Canadian companies, including AppZero have proven successful in the initial rounds of funding. With cloud computing seen as the future of business and IT, how will new and existing Canadian companies fare in finding funding for their business ventures?

Cloud Computing: A Brief Synopsis
Cloud computing is one of the latest buzz concepts in business and technology. Though it is subject to many definitions, as innovations in the early stages usually are, it relates to the way software and information are accessed through on-demand Internet services.

The basis of cloud computing is the concept of applications located within a shared data center. As mobile computing becomes the norm in business, the ability to access necessary files and applications from anywhere-home, the airport, or a coffee shop-becomes a crucial component of the work process. Cloud computing helps make this possible, allowing the user to access information from any computer with an internet connection.

Since cloud computing is not a clearly defined concept, start-up cloud service providers often have difficulty securing funding, especially in the initial phases. Though considered the future of business and technology, some venture capital firms may not be willing to assume the financial risk. Venture capital firms are not alone in their hesitancy to embrace cloud computing.

Concerns with Security
Business executives and management are skeptical of adopting cloud computing due to the perceived security risk. Many are concerned about the possibility of data leaking beyond the network and being seen by competitors. As a result, many executives may not see the benefits of cloud computing, primarily that it can save the company a significant amount of money.

Businesses do not own the infrastructure; instead they rent the service, platform or infrastructure from a 3rd party provider, possibly eliminating the need for a separate IT department. With cloud computing, they no longer have to run a server and are able to reduce downtime. Not only is this more convenient, but it may improve interactions between businesses and their employees, partners, and clients. According to an IDC survey that studied the platform of Force.com, the customers of the company saved an average of $560,000 per application.

Cloud computing may become more acceptable as the younger generation, who grew up with the Internet and is used to sharing and open source technology, moves into executive and managerial positions within companies. This generation sees cloud computing as an exciting opportunity and do not have the security reservations that worry their older counterparts.

VCs and Cloud Computing Start-ups
It has been difficult for many Canadian cloud computing start-ups to find funding as many of the large cloud computing start-ups are located in the United States, specifically the Silicon Valley. Adding to the complexity of pursuing funding, many Canadian venture capital firms aren't as well funded as their neighbors to the south. Often US-based venture capital firms may be averse to funding a Canadian start-up due to regulatory hurdles.

However, several large venture capital firms provided funding for several Canadian start-up cloud computing firms. BDC Venture Capital, GrowthWorks, and VenGrowth Asset Management, Inc. contributed funding to cloud service dynamo AppZero. Each of these firms is a leader in investment, providing funding for promising opportunities in technological innovation throughout Canada and North America.

Venture Capital firms have stringent investment criteria, taking into account the business strategy, an assessment of the management team, and potential competitive advantage of each business plan they consider. BDC Venture Capital, GrowthWorks, and VenGrowth Asset Management seek to partner with the company they invest in, playing a role in each stage of development. As will any business venture, start-ups with a clear and realistic strategy, an innovative idea, and the potential for long-term growth have a better chance of receiving funding from venture capital firms. It also helps if the business has the potential of going public or being absorbed by another company.

Innovations often take years to adopt. The credibility of cloud computing has increased with prominent research by large companies, including Google and IBM. This should not keep cloud computing start-ups in Canada from continuing to seek funding for each phase of development. Start-ups who are able to secure funding will reap the rewards as cloud computing gains popularity and becomes a standard part of business. The challenge remains in convincing the venture capital firms of the start-up's relevance and long-term viability within the sphere of this new technology.