Cloud and Web Hosting Industry Trends in Private Equity Investment


As the web hosting and cloud computing markets mature, the mix of companies achieving success in raising venture capital has changed. The industry has attracted well over a billion dollars in investment so far in 2017. However, most successful funding rounds have been focused on software rather than infrastructure.

With Dropbox said to be preparing for an IPO, motivation to find the next internet service unicorn remains high.

At the same time, funds like the initiative launched in May by Cisco, Emery and Texas Tech to support enterprise software and cloud computing companies in Europe show the continuing emergence of non-traditional investment groups in the industry. The fund, managed by Notion Capital, is expected to invest in roughly 20 early-stage companies during the next decade. Startups can leverage the resources of programs like incubators, which can sometimes reduce or delay the need for capital, and some governments offer grants not only for startups, but also for expanding technology companies.

By considering recent funding rounds announced in the industry, several possible trends can be identified. Indeed, it’s important to understand the market for investment in the industry in order to make difficult business decisions about finance strategy.

Cloud Management and Security

The most active area of investment in the cloud and hosting ecosystem appears to be cloud management and security. Tools to provide control and visibility are popular among organizations with maturing cloud practices, and, with a steady stream of cybercrime headlines top of mind, companies continue to budget generously for security spending.

Company Funds Raised Round Service Provided Closed
Cloudhealth Technologies $46 million Series D Cloud management June 2017
Platform9 $22 million Series C SaaS support for open source infrastructure and complex cloud frameworks June 2017
Netskope $100 million Series E Cloud security (CASB) June 2017
Armor $89 million Series F Cloud security (public, hybrid) April 2017
CloudCoreo $2.9 million Seed Cloud infrastructure and security management October 2016
Rackware $10 million Series B Cloud infrastructure management September 2016

Internet Tools and Services

Tools related to development, web services, ecommerce and big data have also attracted investment interest during the past year. Several of the largest funding rounds, both early and late, were awarded to companies using internet services to help other companies do business online.

In addition to the funding rounds below, enterprise big data firm Cloudera filed papers pursuant to an eventual IPO in April. The filings value the company at about $1.8 billion–less than half the private valuation of its Series F funding round in 2014, though still big enough to make it one of the industry’s most anticipated stock launches.

Company Funds Raised Round Service Provided Closed
Fastly $50 million Series E Content delivery May 2017
Rubrick $180 million Series D Data backup and recovery April 2017
Mailgun $50 million Venture (Series A, spun out from Rackspace) Email app APIs February 2017
Magento $250 million Series B Ecommerce January 2017
Stripe $150 million Series D Payments November 2016
Heptio $8.5 million Series A Enterprise Kubernetes support November 2016

Web Hosting

A pair of funding rounds by web hosts over the past year show two areas of interest to venture capital. The massive investment in OVH supports the global expansion of a company with an established revenue base and pattern of growth. The successful early round by Polish host H88 positions the company to grow its share in a rapidly expanding local market.

Company Funds Raised Round Service Provided Closed
OVH $400 million Debt financing VPS, dedicated, cloud hosting June 2017
H88 $6 million Venture (Series A) Domains, shared, cloud hosting October 2016

The types of service providers that have received multimillion-dollar funding rounds during the past year could be an indication of the maturity of the hosting market. The long-term profit potential of the business is significant, but most areas of the market are occupied by incumbents. H88’s local market may be underserved due to the rapid growth of Polish business online, giving it an opportunity probably no longer available in North America and Western Europe.

Areas of sustained demand on IT budgets–such as cloud management and, further along the curve, security–continue to attract investment. Tools for improving digital processes, including containers, also found venture capital backing over the past year.

Does the lack of funding rounds by hosting companies represent a decrease in hosting startups? Are new hosting companies currently bootstrapped? Are all new hosts competing for boutique niches? The recent history of industry finance begs those questions without providing answers.

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