Accel Investing $100 Million in Big Data Startups

It takes a whole stack of cash to fund a Big Data startup.

Is “Big Data” a lot of hype?

If you ask some pundits, the answer is “yes.” But Accel Partners thinks differently—and it’s willing to put its money where its mouth is, so to speak. The venture-capital outfit will invest $100 million in emerging data-analytics firms as part of its new Big Data Fund 2.

Accel launched its first Big Data fund in November 2011. This second round will add some new goals. “We’ve focused a tremendous amount of attention on what people like to call the ‘three Vs’ of big data: variety, volume and velocity,” firm partner Jake Flomenberg told TechCrunch. “We now believe there is a fourth V, which is end user value, and that hasn’t been addressed to the same extent.”

Increasing that end-user value is a matter of boosting data-analytics software’s everyday functionality. “The last mile of big data will be built by a new class of software applications that enable everyday users to get real value out of all the data being created,” Jay Parikh, vice president of infrastructure engineering at Facebook and Big Data Advisory Council member, wrote in a statement released by Accel. “Today’s entrepreneurs are now able to innovate on top of a technology stack that has grown increasingly powerful in the last few years—enabling product and analytical experiences that are more personalized and more valuable than ever.”

Hadoop Bubble?

Data firms funded by Accel include Cloudera, Couchbase, Lookout, Nimble Storage, Opower, QlikView, Sumo Logic, and RelateIQ.

What do these firms have in common? Many base their products on Apache Hadoop, a popular framework for analyzing massive amounts of unstructured data stored on clusters. Over the past few quarters, a large number of software firms have plunged into the Hadoop space—including giants such as Intel and Hewlett-Packard. That might make it difficult for startups to attract notice, although millions in venture capital could help on the research-and-marketing front.

Given all the Hadoop products on the marketplace, it’s worth asking if a bubble is in the making. Surely all these companies can’t profit equally from their respective Hadoop platforms. Hadoop’s open-source nature also works against any firm trying to make a buck off it.

“The Hadoop and MapReduce market will likely develop along the lines established by the development of the Linux ecosystem,” Dan Vesset, vice president of Business Analytics Solutions at IDC, wrote in a research note last year. “Over the next decade, much of the revenue will be accrued by hardware, applications, and application development and deployment software vendors—both established IT providers and start-up, which in aggregate have raised more than $300 million in venture capital funding.”

In other words, if a software platform is open source (i.e., Apache Hadoop or Linux), IT firms will face the sometimes-difficult task of persuading potential clients to opt for a (potentially costly) proprietary product over an open-source distribution. That’s a battle those firms will lose a portion of the time—dragging down their revenues in the process.

Those are just some of the challenges facing Accel if it chooses to continue pouring money into Hadoop-related ventures. But there’s also a healthy upside: any startup has the potential to become the next SAP or Oracle, ensuring investors millions (or even billions) in the process.

 

Image: Jorge Casais/Shutterstock.com

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