September 17, 2013

In a sign of the importance of access to capital and the need for a well-defined capital structure strategy, seven year old, San Diego-based cloud storage provider Nirvanix is shutting down after an unsuccessful fundraising round. Nirvanix apparently has a fairly sizeable customer base (40 petabytes of data at its various facilities), and had been marketing itself as an alternative to Amazon’s AWS for public cloud customers. To date Nirvanix had raised upwards of $70 million; its most recent round was $25 million in May of 2012. The investor base included Khosla Ventures, Intel Capital, Valhalla, Mission Ventures and Windward: a strong enough group to provide every appearance of financial backing. Moreover Nirvanix had also garnered positive reviews from industry consultants Gartner Group and it had a bulge bracket bank (Credit Suisse) as a customer.
The announcement came rather suddenly and customers were told they had to put alternatives in place as quickly as possible. Other providers were mentioned but the company’s release then noted, “We have an agreement with IBM, and a team from IBM is ready to help you”.
Inevitably chatter over the weekend on tech blogs and in the VC community was that AWS has become a bit of a juggernaut and that companies seeking cloud providers will now migrate to bigger, better-financed operators. Based on reading and conversations the consensus Silicon Valley view is that well-informed customers  (public- or private- cloud) will ask the following:
How well financed and robust is your business?
What terms and conditions in the SLAs protect my data if you cease operation or another corporate change occurs?
What is the back-up plan for me in the event you cease functioning as a business or there is a major corporate event?
The ripple of effects of this announcement will, in all likelihood, work to the advantage of larger players in the cloud industry.  Customer communication and service – as well as a frank discussion of back-up plans – will be powerful tools to counter–act a reflexive rush towards the largest balance sheets.