Exploring the rise of AI/ML, vertical specialization, and security in VC-backed cloud technology. Delving into AI model architecture, enterprise adoption, industry-specific clouds, and cloud security. Highlighting funding trends, challenges in security data management, and market outlook for the cloud sector.
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Quick takeaways
Key takeaway 1: AI/ML integration in cloud technology is rapidly advancing, with startups focusing on smaller early-stage investments and partnerships with major players.
Key takeaway 2: The trend of vertical specialization in the cloud industry is growing, offering tailored solutions to specific verticals like banking and emphasizing the importance of data security.
Deep dives
Trend one: The Rise of AIML and Cloud
The podcast discusses the significant impact of AIML within the cloud ecosystem, highlighting major advancements in AI technology such as foundation models like Dolly and Chat GPT. Companies are focusing on developing core foundation models, middleware services, and applications on top of AI technology, creating layers similar to those in cloud computing. Startups are leveraging AI advancements to disrupt established players, offering opportunities across various layers of the AI ecosystem.
Trend two: Vertical Specialization
The episode explores the concept of industry clouds, combining SAS, pass, and ISK capabilities tailored to specific verticals. Companies in the cloud ecosystem are offering industry cloud services, addressing vertical business challenges directly. Industry-specific solutions in areas like banking exceed typical cloud standards, providing tailored solutions while mitigating the risk of vendor lock-ins.
Trend three: Security
Security emerges as a vital trend with significant funding and the creation of new unicorns in the sector despite a slight drop from the previous year. Cloud-specific security companies like WIS are witnessing unprecedented growth. The complexity of enterprise environments and increased regulatory scrutiny are driving interest in areas like supply chain security and software bill of materials, emphasizing the importance of protecting data in the wake of cyber incidents such as the solar winds breach.
Audio version of Greylock investor Jason Risch's essay "Three Trends in VC-Backed Cloud." As part of our Castles in the Cloud project, which maps the activity in the venture capital-funding startup ecosystem with that of the Big 3 Cloud providers, we compile a database of fundraising at the end of each calendar year and identify trends. Although 2022 and the first part of 2023 has been marked by notable advancements in cloud technology – mostly via AI integrations – there is still considerable restraint in today’s venture capital-backed ecosystem. That figure doesn’t translate to lower activity, however. Many venture capital firms report they are just as busy as prior to the market correction, albeit with a focus on smaller checks for early-stage companies. Technological advancements, partnerships between major powerbrokers, and vertical specialization are all components of the current wave. The top three trends for this period are the rise of AI/ML in cloud, Vertical specialization (or, industry clouds), and security.