Instrumented Interconnecteds Intelligent
October, 14th 2013

Mike Grandinetti, Managing Director, Soutboro Capital

Mike Grandinetti, Managing Director, Southboro Capital

By Mike Grandinetti

From start-ups in Silicon Valley and New York City, to entrepreneurs in India and Africa, the world is witnessing an unprecedented rate of innovation.

For many of these young companies cloud is the technology and strategy behind their inventiveness and the keystone to enabling them to take advantage of the insights, collaboration and scale of things like Big Data, social and mobile.

But they’re not deploying any old cloud. For the majority of companies we work with, cloud solutions based on open standards are the leading development platforms. The reason: open standards enable them to scale in the future and avoid the high costs and technical limitations of vendor lock-in.

In many ways, this world of startups, which is typically one of frugality and agility, is perfect for cloud computing, but especially the open cloud. That’s because open cloud solutions provide the opportunity for collaboration and transparency that developers require that enables them to come together to build upon and refine an infrastructure or platform.

And it’s this very of nature of the open cloud where venture capitalists (VCs) are turning to push the innovation envelope to spot the next hot trend.  

Because start-ups are risky by their very nature, starting their business in the cloud makes things simpler from the start. Newer and smaller businesses can use cloud services to get up and running quickly; many cloud services can be turned off or on by a few mouse clicks – quickly discarding tools they don’t need and adding those they do at a moment’s notice. As a result, costs can be aggressively managed and lowered, opening up the possibility for start-ups to use more of their capital toward their business goals.

While it’s no secret that start-ups thrive in dynamic environments, this generation of entrepreneurs enjoy being a part of something – a community – where business owners can connect with outside partners in order to access a much wider range of resources, ideas, talent, and even budgets. Through open innovation partnerships, startups are able to solve complex problems by linking to different groups, such as universities and large businesses, to access ideas otherwise unavailable inside the organization.

Furthermore, this new wave of start-ups, of which app developers are no small portion, have a track-record for choosing open standards platforms that allow them to move up the value stack as they scale. Such platforms provide freedom, choice, flexibility and customizability. At their core, start-ups are innovators – constantly creating and inventing. To a company, they have to be able to pivot on a dime. That’s not so simple when locked into a proprietary cloud vendor. The open cloud gives start-ups the ability to not only scale as they grow, but also provide the assurance that when things change, the business can, too.

Venture capitalists typically seek at least a three- or four-times return on their investments, and early-stage investors often target even higher returns because of startups’ high rate of failure.  

Today, cloud and open stack technologies are well established, and businesses that leverage these capabilities take much less capital to build. In turn, angel-funded startups can go well beyond launching a product to actually expanding their business model and targeting new markets.

From an investor perspective, that means that technology and product risks are somewhat mitigated while initial customer engagement gets well underway – making more and more start-ups ‘capital-efficient,’ requiring less initial investment and yielding significant returns for investors.

We are witnessing an historic change where the authority over IT spending is continuing to slip away from the CIO to various power centers, such as the CMO’s office. Meanwhile, emerging trends, such as the Internet of Things, represent enormous potential for new revenue streams.  

That, plus the role of open cloud, has dramatically impacted core economic concepts of quickly delivering business value while driving the entrepreneurial spirit.  

This is making the start-up business model more accessible to people with smaller budgets while transforming the level of productivity and accelerating innovation – keys for VCs working to decide where to place their next big bets.

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