Ignition Partners Talk Cloud Computing and Virtualization—A Crucial Part of the VC Firm’s Strategy

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acquisition by Citrix Systems (NASDAQ: CTXS) in 2007 (more on that below).

“This is the next generation of what we believe system software is doing,” says Brad Silverberg, a co-founding partner at Ignition who is on the board of Skytap, a Seattle cloud computing firm. “It’s the next stage of the Internet. Five years from now, everything we do in computing will be touched by virtualization or cloud computing.”

Ignition partner Richard Fade, who sits on the board of Stamford, CT-based virtualization startup InstallFree, says, “It’s a lost opportunity if we’re not deeply embedded in this space. We have a lot of close relationships with thought leadership in the industry.” He cites leaders like Paul Maritz, the former Microsoft exec and current CEO of VMware, who resides in the Seattle area, as well as Microsoft muckety-muck Bob Muglia, who’s president of the company’s server and tools business. “Across the board, we think virtualization has the potential to remake the way servers are deployed and managed. We see a whole continuum of products evolving. Our job is to pick the ones that have significant shares.”

Fade and Silverberg are both former senior vice presidents at Microsoft who helped lead the software giant’s early Internet efforts, among other responsibilities. For the past three years, they have led Ignition’s thrust in virtualization and cloud computing, together with fellow partners John Connors and Cameron Myhrvold.

And how have they been doing? Let’s take a closer look at four of Ignition’s key investments in the space. The following list doesn’t include portfolio companies like Azaleos or OneHub (both based in the Seattle area), which use aspects of the cloud and virtualization for their products, but aren’t creating the core technology:

—XenSource, based in Palo Alto, CA (with a Seattle-area office), was bought by Citrix for $500 million in 2007, as mentioned above. XenSource had developed a type of “hypervisor,” or virtual machine monitor, that allowed multiple operating systems to run on a single host computer. Silverberg says originally there was a “lively debate” within Ignition about whether to invest, because XenSource was a late-stage revenue company. In the end, the venture firm led a $15 million Series C round for XenSource in 2006. All told, the company took less than $50 million in total funding, so the investors (including Ignition) got handsome returns, roughly 10 times their investment.

—Skytap (originally called Illumita), based in Seattle, was founded in 2006 out of the University of Washington. Its technology lets companies manage virtual machines that can handle data storage, processing, and networking for complex tasks like software development and operations testing. The advantage over Amazon or Google’s cloud computing platform is that Skytap works for your existing applications, Silverberg says, without your having to do any special coding to fit an outside company’s model. Ignition participated in Skytap’s $6 million Series A round in 2007, and then re-upped in a $7 million Series B round last March. Skytap has been gaining traction with … Next Page »

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