In keeping with compulsory end-of-year traditions, I wanted to share what I’m most excited about as an early-stage technology investor heading into 2012 and beyond. If 2011 was all about VCs losing their heads in the consumer Internet craze, I think 2012 will be about the re-emergence of enterprise investing which has been a black sheep for many venture capitalists since around 2008. (Perhaps nothing makes it clearer that enterprise investing is on its way back than this Pulitzer-worthy piece of journalism from TechCrunch: http://tcrn.ch/tx0S6b).
So, with no further ado, here are several themes that I’ll be spending my time exploring in the coming weeks, months and years:
Democratization of Big Data
I view the democratization of Big Data as two things: 1) giving any organization – from enterprise to startup – a cost-effective way to harness the power of the data it generates and 2) to empower any user within the organization with tools that make it easier for him or her to glean insights from that data.
The first statement reflects the point that startups today generate petabytes of both structured and unstructured data but do not have the financial and/or technical wherewithal to deploy multi-million dollar Netezza, Vertica, Greenplum, Teradata, etc. appliances and data warehouses. Hadoop offers some benefits (e.g. runs on commodity hardware) but it’s still costly and complex to deploy and manage. Amazon Elastic MapReduce offers access to Hadoop clusters as-a-Serivce, but outside of that, smaller companies today don’t have affordable, out-of-the-box or on-demand solutions to process, analyze and then gain insights from the data they generate. In 2012 this will start to change.
The second point reflects that for an organization to make sense of their data they often are forced to make at least two or three specialized, expensive hires: a Java Engineer to set up the Hadoop infrastructure, a Data Engineer to write the data processing algorithms and then a Data Scientist to generate insights from the processed data. This is too much overhead. That’s why I’m excited about products like Platfora that unlock Hadoop and enable Business Analysts with little or no technical expertise to derive insight from massive sets of data.
Cloud (Security of)
“Cloud” has been a buzzword for more than five years now, but really only in the last two have organizations started to realize the immense potential from this paradigmatic shift in how compute resources are structured and utilized. What’s slowed adoption, however, has been concern over security, compliance and governance of data in the cloud. Incumbent network security and security software vendors have not innovated adequately to meet the demands of this new architecture, but in the last year or two there seems have been meaningful startup formation around this pain point. I’m looking to new encryption and encryption key management solutions purpose-built for the cloud, new products around authentication and identity management and wholly new methods for securing highly distributed, public/private/hybrid cloud networks. Additionally, cloud management platforms that go beyond commodity automation and provisioning of servers to tackle bigger issues around compliance and governance are going to get my attention.
Consumer Hardware Hacking
The dream of machine-to-machine (M2M) technology has been around for decades, but I think we’re finally starting to see its emergence in broader consumer markets and applications. At RRE this past year we invested in MakertBot, a manufacturer of 3D printers for the mass market. More broadly I’m excited about what companies/products like Sphero and Twine will enable down the road. Today, their use cases just show a sliver of what the underlying technology will be able to do (see here), but imagine being able to control your washing machine, television, fridge, car or any other appliance from your mobile device. That’s pretty cool stuff.
Next-gen Networking Technologies
As an enterprise investor, a good way to uncover “what’s next?” is to follow the bottleneck in the datacenter. In the last few years, that bottleneck has resided in storage (at RRE we saw this and placed a bet in WhipTail Technologies, a developer of fully SSD-based storage arrays) but as SSDs and new storage systems emerge with a renewed focus on performance (IOPS and throughput) the bottleneck, I believe, will begin shifting back to the network. Like storage, networking technologies need a facelift badly. Cisco network switch technology based on point-endpoint telephony models needs a refresh. I’m excited about the promise of virtualized networks where the software is de-coupled from the routers and switches enabling networks to become programmable and thus more flexible. Companies like Arista Networks, Embrane and Big Switch Networks (based on the OpenFlow communications protocol) are leading the charge, but we’re only in the first inning or two of this game.
Looking to the future, my one concern as a young VC heading into the next year(s) is that we, as an industry, aren’t funding big enough risk. Too often in recent years money has flowed into companies that solve only incremental problems associated with business model innovation or interface-level improvements. The result, at least for VCs, has been plateauing returns.
In 2012 I’ll be on the lookout for companies that are dreaming big and solving real, technical problems, and I’ll be hoping that the new year brings with it a renewed sense of risk-taking both from entrepreneurs and the people who fund them.