IoT & Embedded Technology Blog

Funneling Funds into the Cloud

by Brendan Bradley | 11/9/2023

Venture capital (VC) and private equity (PE) have focused their sights – and their wallets – on the cloud-native development market, seeking to reap the rewards of the potential for an industry-wide shift among software developers as they transition from traditional local development towards development performed in the cloud.

Cloud startups are particularly appealing to investors, as their low capital equipment costs combined with the typical subscription-based revenue model offer constant and predictable margins that can be easily calculated and forecasted for due diligence and divestment purposes. Online sales and flexible service delivery methods offer cloud computing vendors greater opportunity for deeper total addressable market (TAM) penetration, allowing for future expansion as companies grow in scale.

Founded in 2016 by a former Facebook engineer, San-Francisco based Replit combines cloud-native development environments with generative AI. Its eponymous cloud-based IDE allows for rapid development and little to no setup required and contains Ghostwriter, an AI-powered pair programmer with capabilities for automatic code completion, proactive debugging, contextual code suggestions, and generate chat functions. Following a $97.4M funding round in April 2023, Replit has a post-money valuation of $1.16B. This funding round was led by renowned VC firm Andreessen Horowitz, whose previous investments involve the like of GitHub, Twitter, Okta, and Stripe.

Seeking to capture market share from GitHub’s leading AI coding assistant Copilot, Tabnine is an AI assistant that supports integration with nearly all modern IDEs, including JupyterLab and Visual Studio, and supports 25 programming languages. Its agnostic support of nearly all IDEs and languages has the potential to solidify Tabnine in niche markets among users of lesser-known IDEs and programming languages. Tabnine underwent a successful funding round of $15.5M in June 2022, led by the investment arms of Qualcomm and Samsung.

At just a couple years old, DevZero has already attracted attention to the tune of $26M for their cloud-native platform that enables developers to create and manage remote development environments in the cloud by lifting resources off of local machines. The solution, focused on bringing DevOps teams to the cloud, was founded by former Uber and Facebook engineers who both recognized the need for such a solution in the field. DevZero’s Series A funding round concluded in early 2023, led by tech-focused VC firms Fika Ventures, Foundation Capital, and Madrona.

This intense investment activity in a market that, despite promising tailwinds, is still very much in its infancy, has the ability to propel some of these smaller startups into the limelight and directly compete with leading offerings like AWS CodeWhisperer and GitHub Copilot that currently dominate the market. Early and continued innovation fueled by these investments has the serious potential to disrupt this establishing market and expand its reach and capabilities.

To learn more about the rapidly growing market for cloud-native development solutions, and the vendors that are leading the charge, see VDC’s upcoming report, Cloud-native IoT Development Solutions.