Fast Pitching the Cloud

For an entrepreneur, one of the most challenging tasks is going for investment money to help realize your vision or dream.  Preparing a business case, aligning the numbers, and then finding an investment banker or venture capitalist may be the deciding factor on whether or not your business will see the light of day.

Many communities which support development of startup companies and entrepreneurs have groups such as the Tech Coast Angels in Southern California providing assistance to startups, and one of their activities is the dreaded, but valuable “fast pitch competition.”

A fast pitch competition allows entrepreneurs to “pitch” their idea in 90 seconds or less to a panel of experienced venture capitalists. The objective is to practice the pitch with a critical group of VCs who will critique their pitch, offering sometimes brutally direct guidance on how they may improve the pitch prior to going “live” for funding.

VCs Promote the Cloud

During a recent fast pitch competition a young entrepreneur was asked how much money he needed for his new company. The response was ~$5 million.  Surprised, the panelist asked the entrepreneur to further break down that number, and the resulting line item review included a significant amount of money for servers, computers, and data center space.

The panelist then replied to the entrepreneur, “you are a startup company.  With a 90% probability you will fail within the first year, buying that much hardware with investment money makes no sense.  All of your requirements are for processing resources needed to develop software and provide a web presence.  All of which can be done within a commercial cloud infrastructure. 

You should forget the servers and data center, start your company within a could service provider, and then I, as an investor, will also be assured that if you fail I will not get stuck holding a pile of hardware and lease on a data center space.”

Now that makes a lot of sense.  Why would you buy hardware to startup a company, if your business could be started using SaaS on a commercial platform?  Why would you spend precious startup funds on capital purchases supporting activities that can be done on a hosted resource, relieving the startup company from the burden of buying and operating equipment in an expensive data center?

A Harbinger for Future Entrepreneurs

The reluctance of a VC to support CAPEX in the data center is a vision into the future of startup investments.  While IT managers love to have a “hands-on” approach to equipment, it is becoming apparent the economics and utility of public cloud-enabled applications and resources are a factor which cannot be ignored.

Investors do not want to waste money on resources which do not directly support business development, and cloud-based SaaS does contribute to relieving the startup from much of the expense of starting a business.    

While there are always arguments and considerations when establishing any business plan, it is a very small percentage of companies that actually have needs extending beyond the standard suite of office automation, billing, provisioning, and other industry niche packages already available as SaaS.

And, the venture capital community, is beginning to speak very clearly – “don’t waste our money on IT resources that do not directly support the business.”