VCs Pour $2 Billion into 40 Container Start-Ups Across 5 Segments

Released by Docker in 2013, containers have emerged as the driving force behind the cloud native movement and the fundamental re-design of how applications are developed, deployed and managed.  Yes, it is certainly early days for containers but with $2 billion invested across 40 start-ups and already 10 container related M&A transactions in 2018 alone, containers are quickly moving from a “cloudy” open source initiative to transforming how cloud operators, SaaS providers and enterprises manage their applications and IT infrastructure. Without diving too deep into the weeds, I can tell this emerging area is complex with a ton of moving parts and just trying to decipher exactly who plays in what bucket can be challenging.

While far from perfect, we settled on five main funding buckets: DevOps/CI/CD, Management, Security, Monitoring and Data Management.  In DevOps/CI/CD, we put together start-ups that tended to focus on tools and services for application development vs. pure management and operations platforms. This group has raised $323M or 16% of the total. Management is a broad category covering orchestration to containers/Kubernetes as a service. The 11 start-ups in Management have raised $637M or 31% of the total. Security has the most starts-ups with 14 and has raised $407M or 20% of the total.  Monitoring is another well-funded area with 4 start-ups raising $504M or 25% of the total. Lastly, Data Management covers those start-ups focused on storage and data protection/mobility for containers. With 7 start-ups, Data Management has raised $157M or 8% of the total.   The top 5 funded starts-ups are Docker, Mesosphere, Sumo Logic, GitLab and Data Dog with $272M, $247M, $230M, $166M and $148M in total funding respectively. The top 5 total to $1.06B or 52% of the $2B raised to date.

SASI Insights:

  • The container/cloud native movement shows no sign of slowing down with 8,000 attendees at Kubecon/CloudNativeCon in Seattle late last year with a few hundred people “hanging out” hoping for a spot to open up.
  • Container orchestration is a critical piece of the scaling and management puzzle and by most accounts, Kubernetes is becoming the de-facto standard. This certainly raises questions around the strategic direction of Mesosphere and Docker with its Swarm orchestration platform.
  • Leading IT players and the core development community seem to be playing well together and avoiding the missteps of OpenStack.
  • Think big and very broadly about containers/cloud native/Kubernetes/micro services, etc. as these frameworks will have significant impact across public and private clouds, on-premise infrastructure and hybrid models.
  • There are certainly container skeptics but there seems to be a shift from questioning market adoption to questioning underlying business models of these venture backed companies.
  • The $2B in venture funding is certainly impressive as is the over $1.2B in container specific venture M&A over the past two years.  There have also been mega open source/container relevant deals with IBM/RedHat for $34B and Microsoft/GitHub for $7.5B.   Other active strategic buyers include VMWare, HPE, Oracle, Cisco, NetApp and Nutanix. Keep an eye out for our full container M&A report due out next week.   See SASI’s Container Venture Market Map at the link below.
https://www.linkedin.com/pulse/vcs-pour-2-billion-40-container-start-ups-across-5-john-rotchford/

SASI advises ClearSky Data on Recent Capital Raise

SASI advised ClearSky Data on strategic partnerships and investment opportunities and engaged with leading technology providers that could leverage ClearSky’s disruptive data management services. Keys to success included understanding and conveying ClearSky’s technology and service models, identifying top candidates and their strategic relevance to ClearSky and driving negotiations and process details to a successful outcome.

ClearSky Data, provider of on-demand primary storage with built-in offsite backup and disaster recovery (DR) raised $20 million in new funding. New investors include a market-leading technology provider and Pear Tree Partners, L.P., in addition to participation from existing investors: General CatalystHighland Capital Partnersand Polaris Partners. The company has raised $59 million to date. ClearSky will use the funds to accelerate customer deployments, sales and go-to-market activities.

ClearSky is experiencing strong business momentum in all areas, already more than doubling year-to-date revenue over its last full fiscal year, and rapidly growing its customer base to include cloud-forward companies like Partners HealthCare, Massachusetts General Hospital, Nuance Communications and Unitas Global. Also announced today, the company is expanding its U.S. footprint in partnership with Equinix, who manages the world’s largest global platform of interconnected data centers and business ecosystems.

ClearSky transforms the way enterprises manage and consume data by replacing capital and time-intensive deployments with a single, durable copy of data that’s available anywhere and is consumed as a service. ClearSky’s patented edge-based service automatically optimizes data across its lifecycle, giving enterprises limitless data access from multiple locations, complete with flash performance, comprehensive protection and management simplicity.

 

Data Management Venture Funding Rolls on with $1.3B while M&A Plays Small Ball

Missing a multi-billion blockbuster deal, total consideration plummeted to under $1B while the deal count of 28 remains roughly even with past years.  While 2017 was a year marked by private equity buyers jumping in with both feet, 2018 sees the return of strategic buyers rolling up smaller players.  The 2018 median deal size declined to $50M but the median price to revenue multiple jumped up to 5.2X and for technology focused transaction, that multiple went up to 6.0X.  M&A slowed in the second half of 2018 with just 9 announced deals.  For 2019, we see a healthy M&A market that is likely to top the 28 deals in 2018 with total consideration moving well north of $1B.  The public markets are shaky and there are economic concerns both within the U.S. and internationally.  However, we do not see the pace of innovation slowing in data management and actually see more market disruption coming in 2019.  We also see discreet data management solutions merging together which will cause “one trick pony” start-ups to consider M&A sooner than later.  The larger incumbents are fully aware of the increased pace of innovation and in many instances, will simply buy vs. build in 2019.  For the full report please contact John Rotchford, Managing Director, at john@sasillc.com.