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SFTechWeek and an Epiphany on How to Win the Cloud Wars

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5 min read

It’s a wrap for SFTechWeek by a16z 2024, and I must say, the experience was exhilarating!

I had the privilege of attending some fantastic events and meeting founders from across the globe, all with one goal in mind – pitching their innovative startups.

From India to Germany, Latin America to Ukraine, Poland to the UK, you name the country, and there was someone ready to showcase their ideas, each solving a niche problem.

AI Image & Video Meetup
AI Pitch Event
AMA panel with VCs

Events like these offer more than just networking opportunities; they help me get a pulse on what’s hot and trending in the startup world.

This time around, I found myself engaging with several venture capitalists (VCs), probing them on one of the most important questions:

How do you source the best deals?

With a deluge of startups landing on their desks, how do they identify the right companies to invest in?

The answers were mostly what you’d expect:

“There’s no silver bullet; it’s a muscle we’ve built over the years”

“Our team of analysts helps us filter through the noise”.

Another classic: “We follow a standard process to evaluate every investment keeping goals of our LPs in mind”.

But there was one answer that stood out and gripped my attention:

“We partner with various business development reps at big Cloud providers to understand which startups are gaining traction, using increased Cloud usage as a signal.”

That insight hit home for me!

As many GenAI startups are not running their own servers, they rely on big Cloud providers like AWS, Azure, and Google Cloud.

One of the biggest expenses these startups have is their Cloud usage.

Take Clueso, for example. Clueso helps companies create professional videos and documentation by taking a traditional screen recording and voice over filled with ‘uhhs’, ‘umms’, and converts them into a professional recording and documentation.

It was started by 3 graduates from IIT Madras in their dorm room and recently raised a $1.4M seed round from YCombinator. (Shout out to the founder Neel Balar, whom I met personally at one of the pitch competitions and happens to be from the same home state as me in India – talk about a small world!)

Neel pitching Clueso

So, imagine one of the big Cloud providers funding Clueso. It is a win-win proposition for both the startup and the Cloud providers.

The more a startup’s Cloud usage grows, the clearer it becomes that they might have achieved PMF IRL.

Cloud usage is the new PMF IRL – Product Market Fit In Real Life!

Increased Cloud consumption is a powerful signal that their product is scaling and gaining traction in the market.

The Opportunity for Big Tech

This got me thinking – there’s a tremendous opportunity here for Cloud giants like Amazon, Microsoft, and Google.

How?

I believe these companies could reimagine their business models to include startup equity in exchange for Cloud credits. Imagine offering startups something like a 10% equity stake for free Cloud usage up to a certain threshold.

Why would this work?

Whoever adopts this model first will gain an edge in multiple ways:

  1. Increased Market Share: By tying startups to their Cloud platform, these companies can lock in new ventures from the ground up, securing long-term clients.
  2. Long-Term Profitability: Sacrificing short-term profit for future potential is a sound strategy. Startups that succeed will bring in massive revenue streams in the long run.

Need a real-world example?

Look no further than Tencent. For years, Tencent has played this game in China. Their super-app WeChat is a gateway to nearly every Chinese consumer, and high usage on WeChat is often a sign that a startup has reached PMF IRL.

In fact, Tencent has become China’s biggest venture capital player. According to Pitchbook, they hold active stakes in 507 companies, with some standout investments in Huya (China’s Twitch), Bilibili (China’s YouTube), and NIO (the Tesla of China). BYD may be giving NIO a run for its money, but you get the idea.

Cloud Companies are the new Venture Capitalists!

In a world where startups are increasingly dependent on the Cloud, Big Tech has an unprecedented opportunity to integrate deeper into the entrepreneurial ecosystem. The company that cracks this model first will not only dominate the Cloud market but also become a key player in the startup investment landscape.

Will Amazon, Microsoft, or Google be the first to take the leap? Only time will tell, but one thing is clear – the Cloud is no longer just a service, it’s the future of venture capital.

Disclaimer: Kataria Kapital is an investor in Tencent and other Big Tech companies; this is not meant to be an investment advice.

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Aman Kataria

Product Manager | Investor | Airbnb Superhost

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