Every week the Opus team picks a news story or topic or idea that is relevant to the entrepreneurs and businesses we partner with.

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Pivotal and the Industrial Internet

Ajit Deshpande - - 0 Comments

First came SaaS, enabling application delivery through the cloud. Then came IaaS, providing the elastic infrastructure for enterprises to host their data and applications in the cloud. But the middle of the cloud-stack – the Platform as a Service, the layer that abstracts out the underlying infrastructure and enables enterprises to develop their own custom cloud-based apps in a simple way – never really caught fire. Maybe that will change soon, with last week’s official launch of Pivotal being a potential catalyst. With $105 million from GE that values the company at more than $1 billion, Pivotal is a newly formed entity that wants to provide ‘Google in a box’ PaaS solutions using technologies and resources borrowed from its creators EMC and VMware.

This is what corporate innovation looks like – two giants spinning out a massive virtual team armed with access to large technology building blocks, funded to the tune of an eight figure sum by a corporation that could serve as the ideal pilot for the new technology across the ‘industrial internet’. Yet, they will be going up against other large players, and some small players, all while the market continues to figure out what it really wants from its PaaS vendors. While SaaS was about lower capex and IaaS was about elasticity, PaaS is about developer choice. So, it remains to be seen whether the market will, like GE, embrace a vertically integrated PaaS from EMC-VMware or whether it will prefer a neutral arms-dealer provider that gives the developer complete freedom on options.

Could GE’s $105 million investment in Pivotal be enough money to deter further early stage investment in PaaS? Is cloud middleware beyond the realm of venture capital compatibility at this time? Probably not, but the bar is now higher. By its nature, PaaS is not for small and medium businesses, because most of them cannot afford to have developers build custom apps and would rather use combinations of SaaS offerings instead. And now, with Pivotal, the competition for the large customers is that much more intense. Which means consolidation should soon be in the air, and with that, another innovation frontier will be been established and solidified!

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API Management is Hot!

Ajit Deshpande - - 0 Comments

Last week, Intel announced its acquisition of API enablement and management services player Mashery for $180 million. Since its establishment in 2006, Mashery has raised approximately $35 million in funding, and is one of multiple players in the space along with IPO bound MuleSoft (raised more than $80 million so far), Apigee, Layer 7 Technologies and others.

Mashery has a network of more than 160,000 developers and powers more than 50,000 APIs, representing significant YoY growth on both fronts. Intel’s Software and Services Group itself works with more than 20,000 independent software vendors, and has been increasingly focused on mobility, security, datacenter-related applications and so on. It just makes sense that one of the most horizontal technology players in history would acquire a business partner that can further its ambitions around mobility and inter-application data sharing. Incidentally, Layer 7 Technologies was acquired on 4/22 for an undisclosed sum by CA Technologies, which means there have been two significant exits in this space in less than a week.

Large players like Intel and CA can now better enable enterprises to bubble up proprietary features and data for third party developers. In doing so, they might also help the ‘app-store effect’ finally take off in the enterprise, which is great in the grand scheme of things. At the same time, this does ‘unbundle’ products and solutions, with the gain to the two companies’ service businesses coming at the cost of lower margins on their product and technology revenues, and so the long-term bet is that there will be disproportionately greater growth in services revenues. If this trend plays out, could the largest companies of today eventually just morph into one of just two types of players – either as mostly B2B service businesses (IBM, CA, Accenture, and maybe Intel), or as conglomerates offering loosely connected, customer-facing products and solutions (Apple, Google, Microsoft, Facebook and so on)? This might just happen, and in that case entrepreneurs even further become the flag-bearers for cutting-edge innovation. And knowing the Silicon Valley, surely the entrepreneurs won’t mind!

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The rise of bitcoins

Ajit Deshpande - - 0 Comments

Bitcoin, the online, decentralized commodity introduced by pseudonymous developer Satoshi Nakamoto, had its most volatile trading day and week last week. The currency rose to more than $260/bitcoin on April 10th, then fell to less than $100 in a matter of hours on the same day, and eventually ended the week at $95. With approximately 11 million bitcoins in circulation, the market-place is just larger than $1 billion in value at this time, down more than 60% from its April 10th peak. Clearly, it’s a nascent market with lots of volatility so far!

So what is this whole bitcoin thing about? The bitcoin concept was introduced in Jan’09 to deal with inefficiencies in the banking system, such as government control, slow speed, high transaction fees etc. By being scarcity-controlled and ‘mining’ dependent just the same way as gold, but at the same time decentralized, anonymous and online, bitcoins do help solve a number of these inefficiencies. More importantly, since bitcoin mining needs compute power as a resource, the value of the currency could represent a good opportunity cost benchmark for computational infrastructure and personnel. Bitcoin usage isn’t currently that widespread, but if the currency does continue to increase in relevance and grow in value, it could actually become representative of the new, IT-driven world economy.  On the flip side, if bitcoin does not gain widespread acceptance as a currency, then it will need to quickly find other uses to remain relevant – like the ornamental value from owning gold or the day-to-day usage value for commodities like oil and metals.

Should VCs consider investing in this space? Absolutely! Bitcoins might not end up being *the* standard for online peer-to-peer exchange, but they do represent the kind of high risk, high reward innovation that should attract super-smart entrepreneurs. On the VC side, many things around the bitcoin make it compatible with classic early-stage investing: potential for becoming a large market with exponential growth, nascence in the mining infrastructure and the marketplace around bitcoins, compatibility with information technology, limited standardization etc. So recent short-term volatility aside, let’s hope things do work out for the bitcoin in the long run, because this might be an opportunity for venture investors to strike virtual gold!

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Cisco acquires Ubiquisys

Ajit Deshpande - - 0 Comments

It has been less than six years since the launch of the iPhone, and smartphones have already become ubiquitous. Combine that with FCC regulations around spectrum allocation, and the outcome is a potential ‘mobile data crunch’, unless Carriers and/or Enterprises adopt mitigating solutions such as Wi-Fi offload, small cell infrastructure deployment, traffic shaping, etc. Last week, Cisco underscored the need for such solutions by announcing its intent to buy United Kingdom-based small cell technology player Ubiquisys for $310 million. Ubiquisys develops stand-alone femtocells primarily focused on deployments by mobile operators for residential and small business customers.

Ubiquisys makes for an interesting addition to Cisco’s cloud-managed enterprise stack, bolstered recently through the company’s acquisition of Meraki. Ubiquisys’ core-network based small cell architecture should lend itself well especially to Meraki’s target segment of small and medium sized enterprises. When it comes to medium to large enterprise customers, the issues of scale, inter-cell interference, soft handoff and integration with cloud and applications require a more scalable small cell system. SpiderCloud Wireless, an Opus Capital portfolio company, has been focused on scalable small cells since it was founded in 2007. Taking an analogy from the Wi-Fi world, SpiderCloud’s Enterprise Radio Access Network (E-RAN) architecture does for licensed spectrum 3G/4G in-building what Aruba did for Wi-Fi.  You simply would not deploy a Linksys where you need an Aruba system nor would an operator deploy Cisco/Ubiquisys where a scalable SpiderCloud Wireless multi-access small cell system is required. Eventually, monetization potential might be greater in the large enterprise segment, so it will be interesting to see how Cisco positions the Ubiquisys product going forward.

What happens competitively in the long run aside, for now Cisco’s acquisition should set the ball rolling towards accelerated small cell technology adoption. As for the enterprise end-user, the smartphone makes him/her more productive as long as data can be accessed, so here’s hoping this so-called mobile data crunch never occurs!

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The Series A Crunch!

Ajit Deshpande - - 0 Comments

The Series A crunch – is it for real? Is it actually happening? Folks in the innovation ecosystem have had a spectrum of views on it over the past couple years. Some have felt it is for real, while others have opined that it is a myth. Add Fenwick and West’s latest survey to the discussion – the law firm released some analysis last week that suggests based on the numbers that the Series A bottleneck has gotten tighter over the past year or so. Data from the survey shows how a much larger portion of seed funded companies from 2011 as *not* being able to raise money over 2012, when compared to the portion of 2010 seed funded companies that were unable to raise money in 2011.

Let’s look at this from a signaling perspective. Traditionally, seed money was raised from angels and super-angels, and VCs came in at the Series A and later. In recent times, some VC firms have taken the approach of doling out small amounts of money to a large number of startups every year, so as to learn first-hand about companies’ progress, and of later investing big dollars in a few chosen companies while dropping the others from their portfolio. As the larger funds continue to do this, more and more VCs are being pushed to come in at the seed to have a seat at the table. At the same time, this is creating strong negative signals around companies that were funded by a VC at seed that which didn’t receive a Series A investment from the same VC. Earlier, since Angels didn’t follow in subsequent rounds, this negative signal was absent, thereby allowing startups a much more level playing field at the Series A.

Should entrepreneurs worry about the Series A crunch? Not really. The odds for startup success aren’t high, but the typical entrepreneur does (and should) believe that he/she can beat the odds, and more money early on can only help! What is actually more important is that the fundraising and execution be done with discipline – raise enough money to get the startup to a milestone or inflection point that helps you raise the next round. Surround yourself with knowledgeable and honest advisors, both from your investor group and outside. If the idea holds water, the money should eventually come, signaling or no signaling (and this is where operating lean will help you remain solvent long enough to raise the money). If it doesn’t, then it will be a learning experience, and your next startup will be that much better for it!

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