As more and more enterprise IT departments attempt to reduce costs and scale their IT infrastructure, venture capital investors have heavily funded startups providing technologies to virtualize servers, storage, networks, databases and desktops.
While the virtualization market has expanded to encompass a wide range of use cases and technologies over the past several years from Android virtualization to cloud networking software, this analysis includes companies spanning the following sub-categories (along with illustrative companies for each).
Desktop & User Virtualization – Companies providing technologies enabling users to remotely access applications and data from their desktop environments. This includes companies such as NComputing and AppSense.
Database Virtualization – Companies that offer tools to turn structured data and supporting infrastructure into scalable software. Examples in this category include Delphix and ParElastic.
Network Virtualization – Companies aimed at consolidating physical network resources and functionality into virtual networks. As we previously highlighted, the software-defined networking industry is heating up, spurred by several big exits including VMware’s $1.26 billion acquisition of Nicira Networks.
Server Virtualization – Companies that offer solutions for partitioning a physical server into smaller virtual servers in order to reduce costs and maximize resources such as Parallels.
Storage Virtualization – Companies that provide technologies to integrate multiple storage devices into a single storage system. This includes PernixData and CloudByte.
In the last year, investments into virtualization technologies hit $744M across 88 deals. While year-over-year (YoY) funding in the space has increased 20%, YoY deal activity has accelerated over 50%. Three of the past four quarters have seen over 20 deals in the virtualization space.
The growing use of virtualization in the enterprise has helped spur a concentration of deal activity at the mid-stage (Series B & Series C), which combined to take nearly 45% of deals in the past eight quarters. Among the virtualization firms that have received mid-stage funding in 2013 to date are Lightspeed Venture Partners-backed PernixData and Big Switch Networks, backed by investors including Index Ventures and Khosla Ventures. Early-stage activity took over 40% of deals in the space and have seen strong YoY deal growth, as shown below.
The bulk of venture deals to virtualization startups has been centered in California and Massachusetts, which together took over 65% of all deal activity in the past two years. Unsurprisingly, Silicon Valley grabbed nearly 40% of virtualization deals in the period.
