I hate it when I have to miss a podcast. And I don't miss many. But this week I was in New York for customer meetings so I had to miss OpenStack Podcast#25, featuring Ryan Floyd of Storm Ventures!

Such a shame. It was a good interview too. For those of you who don't know, Ryan was one of the early investors in OpenStack vendors Metacloud (acquired by Cisco in late 2014)  and SwiftStack, as well as other well-known technology companies like Marketo, MobileIron, and Airespace.

He's in the heart of the action in Silicon Valley, helping his funded startups succeed, and listening to pitches from entrepreneurs about the next round of exciting new technology-based businesses. So he's got a unique perspective and he shared it with our audience today. Subjects he covered include:

• How Amazon has leveled the playing field for startups
• The future of public and private cloud
• The importance of infrastructure companies supporting OpenStack
• Where the opportunities are in the OpenStack space
• The OpenStack business he'd start today (if he were in the business of starting companies)
• What makes a promising startup
• The importance of complexity when it comes to startup success

To see who we're interviewing next, or to sign-up for the OpenStack Podcast, check out the show schedule! Interested in participating? Tweet us at @nextcast and @nikiacosta.

For a full transcript of the  interview, click read more below.

Jeff Dickey:                All right. Good morning, everyone. I'm Jeff Dickey from Redapt. Really excited today to have Ryan Floyd on the show. He's going to have, I think, a great take on what we're doing in the community, and I'm just really excited to have him on the show. By the way, Niki's not here today, so we're going to miss out on all the good questions. I'll try to cover for her. Ryan, can you do an intro?

Ryan Floyd:                Yeah. Jeff, you'll do great. Yeah. My name's Ryan Floyd. I'm a managing director at Storm Ventures. Been a venture investor for 15 years. All Storm does is early-stage enterprise tech investing. Today, what that basically consists of are things like SaaS, mobile investments, and the reason I'm here talking is because it's a lot of cloud infrastructure. We've been investing in infrastructure for some time. It's been interesting to see how things have evolved. That's what's brought me to OpenStack.

Jeff Dickey:                That's great. Get me some background. Tell me about how you got into technology and ultimately how you got in to looking at these OpenStack technologies.

Ryan Floyd:                Yeah, it's probably a different story than you hear from most getting into technology. My first job coming out of school ... I was undergrad at Stanford ... was working for a private equity firm out here, where I was basically cold calling. I was what a lot of companies call today sales development reps, SDRs. I was basically an SDR for this private equity firm. My job was to call companies, generally companies that didn't really need money, and convince them to take some private equity, for a lot of very good reasons. Basically, it was a sales job. It was just an incredible first job out of school, but very humbling. Got hung up on lots and lots of times.

When I came out of school, I was under the false impression that there were a lot of opportunities in environmental technology. That's actually what I had studied in school. I was actually a conservation biology major, called Earth Systems, was the group at Stanford. When I got to Summit, I quickly realized that that was not the case, and either I figured out technology very quickly or I was going to get fired. I quickly figured out technology and started focusing there.

That led me to get involved with an investment that Summit ultimately made in a company called E-TEK Dynamics, which we made that investment in '97. It was a fiber optics business. This was during the bandwidth boom, when everybody was building out optical networks. E-TEK made some components that fit into the network that helped to split and condition light. We took that company public, and then ultimately it was bought by JDS Uniphase, which is still in existence. We sold it in 2000. In 2000, that's when I left to start Storm. I really cut my teeth at Summit, and then really got an operational background at E-TEK. Then I've been a tech investor ever since 2000, when we started Storm.

Jeff Dickey:                That's great. What are some of the investments that we would know?

Ryan Floyd:                Some public companies that you would know currently today, there's a company called Marketo, which is a marketing automation SaaS company. There's a public company called MobileIron that does mobile device management. It helps secure all the mobile devices, the iPads, the iPhones, and Android devices inside of an enterprise. We had a company called Airespace that was a wireless LAN company. It was one of the first that delivered enterprise wireless LAN. That was bought by Cisco. Then specifically in the OpenStack community, people are probably familiar with Metacloud, which was a company that I seed funded and backed Sean Lynch and Steve Curry, back in, I guess it was 2011, summer of 2011, when we got that business off the ground. Yeah. Many more, but a number of companies.

Jeff Dickey:                Yeah, that's great. SwiftStack, too, right?

Ryan Floyd:                Yeah. Then currently, yeah. In terms of the ones that haven't exited. Yeah, we're in SwiftStack. We're also small investor in a company called Nubeliu, which is the folks ... It's a really cool company. It's the folks that built, that stood up the OpenStack cloud from MercadoLibre. They're basically building out an OpenStack presence in Latin America.

Jeff Dickey:                That's great. That's a big market.

Ryan Floyd:                Yeah, it should be. Yeah.

Jeff Dickey:                Great to have you on the show because of, again, the perspective that you have coming from the VC space. My inbox is flooded with folks that are in the community that want me to look at their technology and vet it out. You must see a tremendous amount of folks. What are you looking for right now in the space?

Ryan Floyd:                Yeah. I do. It's one of the things I love most about the job, honestly, is that I get to meet so many smart, smart people. I remember actually, going back to Summit, I remember one of their interview questions where they said, "How would you characterize yourself in front of the class? Where would you fit in?" I would characterize as I'm the guy that always works really hard but is never the smartest guy in the room. It's great being in a position where I'm constantly inundated with really smart entrepreneurs that come into Storm and talk to me about what they're trying to do and what they're trying to build. It usually arises out of some problem or passion that they've had, or something they've been thinking about for years. It's amazing.

I think especially today, it's very busy, because the markets are pretty active right now. I think companies are buying a lot of technology or willing to buy from startups. Just to drill in on that for a second, it's amazing today to think about the fact that, as a startup, you can go in, just take SwiftStack, and you can sell storage into a Fortune 500 company. I don't know if it's true of a lot of listeners, how much history they have, but that would have been impossible ... Five years ago, maybe. Certainly 10 years ago, that would have been impossible to go do.

It used to be the case that the sales rep from the big storage vendors, whether it be Hitachi or IBM or EMC, would go play golf with the CIO. They'd figure out what their storage needs are, and they'd close it. Startups didn't have a shot at selling anything into these enterprises. What we've seen over the last couple of years, or certainly the last five years, but it's accelerated is just the ability to go in and sell if you've got a solution. We can talk a little bit about open source as a piece of that. We see a ton of just great, great businesses.

I think today, too, the other thing I'd say that characterizes what we see a lot coming through the door today, it's all software-based. It's just magical from a startup standpoint, because one of the things that always puts startups at a disadvantage, certainly on the infrastructure side, was this requirement that they had to build out hardware. That's not true in all cases. There are some companies like Nutanixes that are doing incredibly well, Pures that are building out with hardware. But the vast majority of infrastructure-focused startups today are basically software companies.

What's magical about that is it just doesn't require as much capital to go build these businesses out. It really gives these startups an ability to go compete. Again, pointing back to SwiftStack or Metacloud specifically in the OpenStack environment, both these companies are software businesses. It's just great, because it allows you to scale very fast and allows you to do a lot with a smaller amount of capital. It's just fantastic. It just wasn't true 10 years ago.

Jeff Dickey:                Right. The SwiftStack thing in the enterprise is amazing right now. I think we've displaced some big iron with SwiftStack in these Fortune companies. There was no way ... What are you seeing, the change in the enterprise, what do you think's changing the buying process or the fact that they are considering these startups with new technology?

Ryan Floyd:                I think part of it's software. I think once you make that leap, that it's running on commodity hardware, you can just get a little bit more comfortable buying from a startup, because you can replace that software. I'm sympathetic with the situation where they were making these big system purchases. They were not making a decision for today. They were making a decision they had to live with for a decade. That's maybe not so true today, and so I think that gives some flexibility to startups and what they can do.

I think by far, the biggest push today is, and the biggest change agent, is what all these enterprises have seen happen with the public cloud. I think by far, if we did not have Amazon push the envelope on what is possible in the public cloud, we would not be where we are today. I think there's a lot of trends that were pointing in this direction, but they have just pushed so hard. That's put a tremendous amount of pressure on, I think, enterprises that do think differently. You no longer can go out and just buy a standard stack from, pick your Fortune 500 infrastructure vendors, whether it's EMC, it's Cisco, it's VMware, whatever, and price that competitively to compete with Amazon.

In enterprises, for CIOs, for IT folks that are looking to do things differently, not only from ... Price is part of it. I think there's a little bit of confusion about that, too, that's worth mentioning. Price is a component. People want to do things, obviously, for less cost, but I actually don't even think that's the big driver. The reason people love Amazon is it's agile. The service delivery is so easy. Even if you have a robust stack from VMware and EMC, when you talk to most enterprises, it still takes them a couple of weeks to provision something. There's still a somebody else in the middle.

I think all of these forces have pushed enterprises to be looking at startups more and more, because they just don't have a choice. If they don't do it, they're going to lose their internal IT groups to public clouds. I just think that it's both these forces, them being able to do things different because they're not having to take as much risk because it's software defined, but also this external push that's coming from the public cloud that's really forcing people to do things differently.

Jeff Dickey:                I like that. I fully agree. What's your vision or what's your thoughts around public cloud? People are saying that everything's going to be public cloud in a few years. There's folks saying no, it's always going to be the data, and the data's going to be ... compliance and whatnot around that. Where do you think this is heading?

Ryan Floyd:                It's going to be big. It's just going to continue to grow. I think Stu mentioned it last week, too. It's not a winner-take-all market. I think the public cloud's just going to continue to grow, along with the private cloud. I actually don't buy the whole data governance security questions. They are true, certainly, for some companies. I won't deny that. Financial services, for sure, the government.

That's not to minimize those issues, but I don't think those are the big drivers. I think often the security concerns are raised as political air cover to not go do something in the cloud. Look, Salesforce had these ... I think that's the example I always point to. Salesforce had all these objections with SaaS a decade ago. There were very large companies that just didn't believe that Salesforce could firewall things and could make it secure.

Today, very few people question any of that. In fact, the argument really could be made, it's probably more secure than what you'd be running in your own data center. People hear about these public breaches, but it's because they're public. You don't hear about a lot of private data breaches. You don't hear about them, because unless they've compromised credit card numbers, companies are not publicizing any of that stuff. There's not a lot of transparency there, so it's hard to compare.

Back to your question, specifically on public cloud, I think it's going to be large. I think the probably one thing that, maybe two things, that I think limit the growth there is, number one, data. I am not a believer that people are going to put massive amounts of data in a public cloud, because for cost reasons, I just struggle to really understand why anybody would do that. You really can do that much more cost effectively if you're running that in a hosted center and you've got big data needs.

I'm not sure who [inaudible 00:13:41] quote. It's not original for me, but it's like data has, it's got mass or it's got gravity, and it's like water. Everybody likes to compare compute to electricity and things move around. Data is more like water. It's got mass to it. You can't really move it around very easily. The public cloud it's tough, because if I move my data there, it's hard to know, if I have some other application I want run it against, some big Hadoop cluster, then I'm just locked in.

I also think the public cloud's going to be limited on the higher-level services that people are going to buy into. I think people are very focused, at least the ones I talk to, very focused on being agile in terms of how they're building out their applications and thinking about the future. Very few want to make a trade-off for simplicity today that may translate into lock-in tomorrow. It's almost like people have just been burned by the big enterprise software vendors over the years, and no one wants to relive that story. It's just that bridge has been burned to the ground. People are just very sensitive to that.

Look, it just makes so much sense for our startups to be starting in Amazon. Just compare that to OpenStack. Why would anybody go stand up an OpenStack cloud if you've got 15 engineers and a million dollars in revenue? It just wouldn't make any sense. It'd just be ludicrous. At some point, if you're spending a million dollars a month in a public cloud, in Azure or Google, or whatever, then maybe things start to change. The economics get to be a little bit different.

It's going to be enormous. It's so many applications. The scaling application, that's not a use case. If you've got to spin up thousands of nodes to run jobs, to have that capacity that you can rent on demand, boy, it's just amazing. It's hard to imagine you'd ever want to build that sort of application yourself. Lots of just phenomenal use cases.

I guess I'll end with, no big surprise, I am a believer in private clouds. I have spent a tremendous amount of time ... and we can get into that here in a second. I've spent a tremendous amount of time thinking about it and talking to customers. I believe, as much as I believe anything in my 15 years of venture, that it's going to be huge. I think both are going to coexist.

Jeff Dickey:                What's exciting you right now about the whole OpenStack ecosystem?

Ryan Floyd:                Contrary to popular belief, I think it's maturity. I think while OpenStack is still relatively difficult to use, it's not simple, I would argue today it's mature. I would argue today you can put it into production, for people that know what they're doing, and they can get it to work. We couldn't say that really easily two years ago. I remember when ... I think it was in San Diego in 2012, when MercadoLibre guys got up. It was going to be this great panel session on a production use case of OpenStack. I don't know if you were there or not.

Jeff Dickey:                No.

Ryan Floyd:                They proceeded to spend the next 45 minutes explaining all the hacks that they had made to whatever release it was at the time to get it to work. I was just like, "Ah." It's like, "That's not production." Most companies can't do that. You don't hear that today. Even a year ago, I know intimately from my time with the folks at Metacloud, they're rock-star operators. They were definitely making some changes, but they were working really hard to just use the existing code base, because they wanted to make it compatible. That's got me excited, because I think that maturity is really critical to adoption.

The other thing that's got me excited from a startup standpoint is that you've got a lot of big companies that have adopted it and are really pushing for it, because I think it takes a village. It was never going to be Rackspace and NASA that were going to make this successful. You really need lots of companies all working together with NASA, with Rackspace, to push it forward.

The fact now that you essentially have every single infrastructure company behind OpenStack ... Really, the only exception I can think of is really Citrix. Everybody else, and even Citrix "kind of," is behind it completely. Obviously, they've got a lot of reasons to do that. It's the biggest existential threat they face to their business. There's a lot of reasons they're doing it.

I think that's overall, it's really good, because I think it's going to really push the whole community forward. There's going to be bumps along the road, and it's not going to be easy. There'll be some issues at the board level. Overall, if you look over time, I think it's going to be good, because it's really critical for their businesses. I think a lot of people think, "The board, the dynamics, it's going to screw it all up." I'm not privy to any of that. What I do know is their success of their business long term depends on making OpenStack successful. I just don't see an alternative for them. There's a few other long-term priorities that are more important. That gets me excited, because it means that for startups drafting behind that, being in that mix, it's great overall.

Jeff Dickey:                How are the big players, the Oracles and VMwares, what are they going to do as far as making money? Are they going to have to fork the code? Are they going to start doing more proprietary things? Are they going to be all in and figure out new business models?

Ryan Floyd:                No. I hope they don't fork the code. I guess they could. I don't think that'd be the smartest way to go make money. No, I think they'll make money on delivering a solution and simplicity into the enterprise. We were talking about it before the show, that it's not easy to deploy OpenStack. I don't think that should be confused with whether or not it's production ready, because I think they're two different things.

I think that's there's a lot of opportunity for these big companies to go in and help large enterprises who don't want to be in the business of delivering against the enterprise feature set, which we can talk about in a second, for them to build value on top of the open source core, because everybody wants to be able to have some kind of compatibility going forward. No one wants to be locked in. I think the fork, anything that creates any sort of challenges in terms of being able to move going forward is going to be hard. I think actually one of the drivers around that will just be hybrid cloud.

I really hope in ... maybe it's not a year, maybe it's a couple years out, but there is actually API compatibility with Amazon, full up. If you talk to the folks at SwiftStack, they will tell you that they ship with APIs that are compatible. They do technically, but it's not a ... You can't just point your application at Swift and then point your application at S3. It's not that simple.

I was meeting with a senior engineer for NetApp last week, and he described it as "seams." Instead of being seamless, it's got some seams that you have to address and deal with. I think probably in a couple years, there won't be any seams. It'll be seamless, and you can be able to push. That will, I think, force all the vendors to really think that the value proposition's going to have to sit on top. Maybe just to hit on that in terms of thinking about that.

I think, contrary to popular belief, enterprises are willing to pay a lot of money to solve their problems. They have money. If you're providing a value proposition to them, companies are very much willing to part with cash to solve their problems. A lot of the enterprise feature set, like management or security or compliance, I don't think the open source community is going to spend a whole lot of time focused on it, because it really doesn't deliver value with respect to the open source core. It's really about enterprise features that are very specific to an enterprise use case.

Just take compliance. The value to probably 80 percent of the developers in OpenStack is zero, because compliance comes with a tax. Nobody really wants that to be part of the core, because it just makes everything more complicated. Those are great things for the bigger companies to deliver against and provide value, and get paid for it.

Anyway, I think there's a ton of opportunity for all the big vendors going forward, because of the complexity. Compare it to something like Linux. OpenStack is, I don't know, 100X, 1,000X more complicated. It's a business. You can even compare it to Hadoop. I don't want to, I don't know, make too many comparisons about how much more complicated OpenStack is. Even if you say it's comparable to Hadoop, it's just it's complicated. It requires, I think, companies to stand behind it and really help enterprises get set up. I don't think that's going to change. It's never going to be out of the box, push a button, and here you go. I'd be surprised.

Jeff Dickey:                Yeah. What do you think is missing from OpenStack or the community? What are some of the gaps that people can address?

Ryan Floyd:                I've told a lot of entrepreneurs that if I was starting an OpenStack business today, I would start a services business. I think that that is the biggest gap today, bar none. You talk to any enterprise, and they will tell you they have X hundred VMware-certified engineers. Ask them how many are OpenStack certified. Oh, whoops. We don't even have OpenStack certification. How many even know what OpenStack is? Okay. How many have ever stood up a cloud? There's just not that many. Part of it's because it's new. Look, OpenStack is early, and it's just getting going. You need those people to really help gets things stood up. There's just a huge lack of talent out there right now focused on that.

I think that that's a huge opportunity. It may not be a venture opportunity, because it's a people business. It's maybe a little harder to scale. I think it's just a huge opportunity. You saw eNovance got taken out by Red Hat. Mirantis still does some services, but they've worked very hard to shift towards product. You think about it. Who would you call today to do service work? You could call, Redapt does ... You guys do a little bit of work. Maybe Blue Box does, but Blue Box [inaudible 00:25:09]. There's not as many. I think it's a great opportunity. I think that's one.

I think the second opportunity is really ... I alluded to it a second ago, talking about what the enterprise feature sets are that these enterprises are looking for that they don't have today, things like security and compliance, which are really an afterthought in the open source community, because they're a tax, they're overhead. No one's really thinking about those issues. They're really not that cool, anyway. They don't really push the platform forward. They're this, I don't know, baggage that it's got to carry with it. I think those are good areas to focus on, because every enterprise needs to have it.

I think looking out a little bit further ... I've seen a number of these companies come in and present to me. I think it's a little bit early, but I think the hybrid cloud story about how do I provide a view for my developers to basically simply get access to an internal OpenStack private cloud instance or get access to an AWS or Azure or Google compute instance, and just make that seamless and easy, and be able to apply some policy across it, have some transparency against it. It seems like that would be simple to do, but there's nothing out there today that really makes it easy. I think that's a big opportunity. If, like me, you believe in the public cloud, people are going to be using both. You got to make something that works seamlessly across both.

Jeff Dickey:                Yeah. I don't think people realize, too, when they're building these OpenStack clouds that a lot of them are greenfield. It takes almost 20 vendors to make it work. There needs to be some sort of consolidation, because everyone's good at this one piece, and you need all of it. How do you manage your logs? How do you do reporting and monitoring? There's all these different pieces that go into it. It would be. It'd be nice to see it under a single pane.

Ryan Floyd:                Yeah. Yeah, and a single vendor ... That's I think where the opportunity is for the big guys. If I was Marten Mickos at HP, that's exactly what I would be building out. Those components that just make it simple to deploy and provide all that functionality under one solution, one throat to choke, when things don't go right, because customers like that. They don't want to have a lot of finger pointing in terms of, "His log analysis didn't work. Her API wasn't configured right. His whatever ... " Customers don't want to hear that. They want you to solve their problem. They don't want you to create more.

It's interesting you bring up the greenfield opportunity. That's something else that I think a lot of entrepreneurs don't always grasp when they come in and we talk through it. Maybe it's because I've lived it. I've had the unfortunate experience of having gone through this. Things happen really slowly in infrastructure, and things are at greenfield, nine times out of 10. It is the rare situation where someone is ripping out existing infrastructure to put in an OpenStack cloud. It just doesn't happen that often, because if you think about it, we've all got 10 things to do in a given day and only time to do three. That application that's running, that is humming along, there's nothing wrong with it, I'm not going to touch it, because there's no reason to. It's the reason why mainframes are still out there today. It is typically greenfield stuff.

I think one thing people have concluded, "Oh, OpenStack adoption. Where's all the production use cases?" The reality, it just takes some time. What I've actually been encouraging a lot of people to do with OpenStack is, yes, production is great. That's awesome. Let's talk about production apps. Also, build out your test and dev cloud. Do that, because test and dev to roll into production, that's something that's going to be 2X, 3X the size of production infrastructure. That's the vast majority of what Amazon's infrastructure does today, is test and dev. Anyway, I think it's important. I think as people think about OpenStack, it just takes time. It's all heading in that direction. With every fiber of my being, I feel that way. It just is going to take a little bit of time to get there. Doesn't happen overnight.

Jeff Dickey:                I agree with the test dev. I'm out there every day. My biggest song and dance is, "Give your developers all the toys that they need to develop modern applications. They should have OpenStack. They should have Kubernetes and Mesosphere and everything, everything at their disposal, and start building what they want. Give them all those tools." Yeah.

Ryan Floyd:                Yeah. Yeah.

Jeff Dickey:                That will help adoption. You're seeing a lot of folks pitch you on their infrastructure stuff. What do you look for? We have a lot of folks that are doing startups around OpenStack that are listeners. I know it's a balance, but is it about the actual team? Is it about the idea, the products, or is it about how much adoption they have? Is it about their pitch? What is that magic balance?

Ryan Floyd:                Yes. Gosh, it is a hard balance. It unfortunately really is an "it depends" question. I would say, specifically around infrastructure and OpenStack, I think, stating somewhat the obvious, I th