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4 Ways Cloud Adoption Is Poised to Disrupt the VC Landscape

Cloud adoption has had a tremendous impact on how people use the internet and do business. The technology is also altering the venture capital (VC) world. Let's take a look at some of the developments and likely outcomes. 

1. Changes in Funding Options

Cloud computing has changed how companies can seek funding. They can still do it in the traditional way and schedule face-to-face meetings to pitch ideas. However, another option concerns funding apps backed by VCs.

Capital is an app that uses artificial intelligence to analyze information about a company, then provide suggestions to optimize it. The tool encourages startups to consider alternative possibilities for funding. Most of them are less dilutive options that require giving up little or no equity. 

The app recently raised several million dollars thanks to a VC team. This app benefits investors because it encourages them to focus on emerging companies that they may have otherwise overlooked due to the crowded marketplace.

2. Highlighting Immense Opportunities for Investors

The cloud computing sector is also a game-changer because it helps VCs back companies that are rapidly changing the tech sector. In one example, Puppet - a cloud automation company - recently raised $40 million from a VC firm. Cloud computing also spurred the creation of other associated industries that primarily operate in the cloud. 

Banking-as-a-service is a cloud-enabled industry that perpetually attracts attention from VCs. Customers have moved beyond choosing standard offerings from banks. They prefer marketplace-style arrangements that allow them to purchase hyper-personalized offerings. This development means banks are increasingly collaborating with fintech companies. Doing that helps them determine how to quickly offer what customers demand. 

A startup called Varo Money embodies what it means to embrace the momentum occurring in the digital banking sector. It raised $241 million in venture funding to become a national bank. The company's founder and CEO noted that COVID-19 made some investors more eager to back mobile banking options, especially with some physical branches remaining closed or limiting the services offered. 

3. Streamlining Data Sharing and Other Logistics

Cloud apps also benefit VCs because they make it easy to share data between authorized parties. Some let financial institutions share customer-permissioned data with third-party apps. That could make it easier for a VC to examine the details of a company's current situation and outlook before investing in it. 

Since cloud apps also have project management, collaboration and goal-setting capabilities, startups could show potential investors reports compiling their recent activity. Such information could convince a VC that a company is active, forward-thinking and well worth the investment. 

Cloud applications also offer improved communications between parties. A startup could depend on video streaming services to show how it used a recent round of funding, thereby potentially upping the chances of a VC providing more financing later. 

4. Reducing the Initial Funding Required

Cloud computing could also lower a company's funding needs. A fascinating study also showed that investing in startups that utilized cloud services was significantly cheaper in some cases. For example, internet-based startups that relied heavily on options such as Amazon Web Services needed 20% less in initial funding than those that remained unaffected by cloud computing offerings. 

The study found that cloud computing did not change the amount raised by startups over several years. The researchers concluded that it made it less expensive for VCs to experiment with a new idea proposed by a startup. However, it did not affect the costs of scaling a business. 

Another finding within the research was that the reduced cost of initial investment allowed entrepreneurs to receive funding that would not have ordinarily been extended to them. Similarly, some VCs started managing their portfolios differently by giving smaller amounts to a larger number of startups. They also often became less involved in governance at those companies and may be less likely to hold board positions. 

What's on the Horizon?

This overview shows that the cloud has had a sizeable impact on the VC world, and its influence is likely to continue. Some of the things people could expect in the months and years ahead include more VCs using cloud platforms to communicate with startups and becoming increasingly interested in companies that offer cloud services. 

Some industries - including banking-as-a-service - are heavily dependent on the cloud, as well as sectors such as e-commerce that need dependable infrastructures to keep customers happy. These realities mean cloud computing will help shift how VCs invest and which startups attract their attention. Stay tuned to what happens in the industry to see how these predictions develop.


About the Author

Kayla Matthews 

Kayla Matthews is a tech-loving blogger who writes and edits Follow her on Twitter @productibytes to read all of her latest posts!
Published Friday, July 24, 2020 7:36 AM by David Marshall
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