Founding an infrastructure startup has never been a sure thing. In the heydays of the last 4 to 5 years ending in 2021, too many companies were funded, and there simply weren’t enough big markets for them to go after. As IT budgets inevitably tighten during a downturn, many startups in this space will need to prove their relevance—and value—as must-haves.
With more than two decades of investing experience in infrastructure software (including developer tools, data infrastructure, and cybersecurity), I can safely say this: Despite the macro concerns we’ve all been living through, overall growth in cloud spending is still robust.
The three largest public cloud vendors—Amazon, Microsoft, and Google—all announced third-quarter annual growth of 28% to 42%. These three players are getting close to $200 billion in annualized revenue, which is a clear indicator that cloud projects aren’t getting slashed.
That said, some may see Microsoft Azure’s 42% year-over-year growth in Q3 as a sign of waning interest (compared to 48% year-over-year growth in Q3 2021). It’s true that overall growth is slowing—but 42% year-over-year growth at $13B is still exceptional.
If you zoom out a bit, you’ll see that this is a market that’s enormous, is still largely untapped, and will likely outlast the current economic turmoil.
As this cloud spend reference by Datadog shows, we’re still in the early innings of cloud adoption.
Against this backdrop, we also expect to see more consolidation among cybersecurity startups and a slimmed-down modern data stack in 2023. No one knows for sure how long this next downturn will last. But as investors in a firm that was founded in 2000, we’ve seen enough dips, twists, and turns to know that surviving is the first step to winning in any market. In this case, the untapped billions in cloud spend could be a silver lining for the year ahead.