Welcome to the golden age of enterprise IT — and get used to it: It’ll be here for a while

In case you didn’t notice, it’s the golden age of enterprise startups. And some investors believe it will continue for another seven years or more. No one is completely sure what will come after that, but it’s worth reflecting on what brought us here and what the dynamics are of this enterprise golden age.
The pattern has become clear with recent funding deals for application-performance management (APM) provider New Relic ($80 million), APM player AppDynamics ($50 million) and data-copy reducer Actifio ($50 million), to name a few. Last year, VCs made 164 investments in big data startups (more than ever before), passing out $1.39 billion in total.
Earlier this month, a big-data startup, SiSense, demonstrated its product by releasing figures — from CrunchBase, Wikibon, Nasdaq and other sources — showing that enterprise startups captured 40 percent more venture dollars per round in 2012 ($9.85 million) than they did in 2011. Meanwhile, consumer-focused web startups captured 45 percent less per round last year ($5.6 million) than then did in 2011.
“What we found is enterprise startups definitely are more in vogue per round than in 2011,” said David Feinleib, a GigaOM Research analyst who looked at the findings. “Web startups are out of favor or falling out of favor.”

Causes of the golden age

Venture capitalists disagree about the exact set of disruptions or trends that set the stage for the golden age. But most agree on the big ones: bring your own device (BYOD), the adoption of cloud computing, and the growth of data sets and the need to make sense of it all.
There are smaller trends, too, including software-defined networking (SDN), flash storage and cyberthreats. Just one would be enough to let in a bunch of new investing. But add them together and mash them up — such as BYOD and cyberthreats, or big data plus BYOD — and you have entirely new sets of funding opportunities.

The rise of the enterprise accelerator

A related development is the slow but steady rise of accelerators specializing in preparing enterprise startups for growth and investments. Current programs include Acceleprise, the Citrix Startup Accelerator, the Microsoft Accelerator for Windows Azure, a similar program in Israel and TechStars Cloud. Plus, Upstart Labs, the startup accelerator based in Portland, Ore., is starting to focus mostly on enterprise this year and now has venture backing.
In the past few months I’ve attended the first and second demo days of the Alchemist Accelerator, a enterprise accelerator in the San Francisco Bay Area. Ravi Belani, its managing director, said enterprise-focused VCs are excited about the events because until now, there hasn’t been a place for them to go when their consumer-oriented colleagues have attended Y Combinator events. “Finally there’s a place they can go where they can fund and meet entrepreneurs,” said Belani, a former associate at DFJ. With programs like Belani’s, it’s easier for VCs to find companies that are more prepared to take on funding, so they can spend more time making bigger deals and meeting their own objectives.
The programs also have helped founders who have loads of talent but less knowledge about business strategy and fundraising. Of the nine startups that went through the first class, five have made venture deals, he said.

How long will it last?

Belani and most other investors I spoke with believe the enterprise golden age started in or around 2010 and will last until about 2020.
It’s only natural to expect the trend to last for at least a decade.¬†“The 1980s was about the whole PC era,” said Navin Chaddha, managing director of the Mayfield Fund and the lead in the firm’s $6.1 million Series A investment in software-defined storage company SwiftStack. “The 1990s was about the internet. The 2000s was about virtualization.”
Now Chaddha sees Software-as-a-Service (SaaS) applications taking over, mobile devices entering the workplace, IT moving from on-premise hardware to cloud computing and big data adding up and needing strong analysis. With those megatrends, IT needs to spend. And so VCs are excited about funding enterprise startups “for a decade or the next two decades,” Chaddha said.

What comes next?

Lots of people want to know what will come after the golden age of enterprise startups.¬†Shirish Sathaye, a general partner at Khosla Ventures, thinks it’s possible that blends of consumer and enterprise technology will become the next big thing. “We already see that happening with the consumerization of enterprise IT,” he said.
But really, he can’t be sure. The year 2020 is a long time from now. Call him in 2017, and he might have a better idea.
Feature image courtesy of Shutterstock user f9photos.