Why this VC thinks we’re heading for a cloud slowdown

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re talking to Alex Niehenke, a venture capitalist with Scale Venture Partners, who has an interesting argument to make: The SaaS and cloud market is maturing, and incumbents are squeezing startups out of certain parts of the market. However, there are still places to put capital to work, and Scale has a notable track record. The venture firm has put money in a number of cloud SaaS companies that are public today, including Box, Bill.com (a recent IPO), RingCentral and Hubspot. Scale has also put significant capital to work in SaaS companies over time, including from its most recent $400 million fund (the firm writes $5 to $25 million checks).

But instead of talking about what’s worked for the firm in the past, we’re looking to the future. Niehenke believes that we’re heading for a cloud slowdown in the next few years, something that I’ve only ever heard one other venture capitalist bring up. So I got some of his time, and we drilled in.

Why might cloud growth slow, and what would it mean for startups? Let’s find out.

Slowdown

Chatting with Niehenke by phone, the venture capitalist decided to ground our conversation about a slowdown at a somewhat meta level, saying that when we discuss cloud and SaaS companies “we’re talking about things that are mature at this point.”

If you talk to cloud and SaaS bulls, you’ll often hear a different argument. Some industry minds believe we’re in the early innings of the SaaS takeover of enterprise software. Niehenke, in contrast, noted that the transition from on-premise software to the cloud has already gone back years. Considering his own career, the idea of packaging software into a cloud and SaaS product was “still controversial” when he joined Scale seven years ago. Looking back 20 years, the “whole notion of doing things in the cloud was borderline crazy,” he says.

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