With $45M in New Cash, Skytap Covers Terrain Missed by Cloud Giants

Despite their size, the cloud computing services provided by tech giants such as Microsoft, Amazon, and Google, don’t work for everyone. Skytap, a Seattle-based company that spun out of University of Washington at the dawn of cloud computing to help businesses move traditional IT functions to the cloud, on Tuesday announced it has raised $45 million in fresh funding.

The Series E investment was led by Goldman Sachs Private Capital, and may be a precursor to an IPO for the 11-year-old company. Prior investors Insight Venture Partners, Madrona Venture Group, and Ignition Partners also joined the round. To date, Skytap has raised $109 million. Goldman Sachs’ Hillel Moerman and Matthew Dorr are joining Skytap’s board as a diector and observer, respectively.

Skytap was formed the same year Amazon announced Elastic Compute Cloud, the scalable, rentable computing power in the cloud that has become the Amazon Web Services juggernaut—a $7.76 billion business through the first six months of this year for Amazon—and helped make cloud computing a major part of the enterprise IT landscape.

Skytap CEO Thor Culverhouse says in a blog post that “AWS does not focus on” a large market segment including “thousands of mission-critical applications that most people thought would always be stuck in the datacenter. It’s not as fun to talk about those ‘on-premises,’ back-office apps that are the heart of an enterprise’s operations.”

His company has been building “a special cloud” for these apps, allowing customers to keep their best parts while enabling modern development practices and infrastructure. Skytap is finding success in helping solve “a messy, urgent challenge for enterprise IT,” Culverhouse says. “We all know AWS, Azure, and the other hyperscale providers are compelling services for building and running new cloud-native applications. But these services combined will still be less than 25 percent of total IT spend in 2020, leaving more than 75 percent of IT budgets tied up in mission-critical applications trapped in the data center.”

Skytap CEO Thor Culverhouse. Photo courtesy of Skytap

Skytap says it tripled sales in the second quarter of this year compared to the same period in 2016.

The new funding will support continued product development, sales, marketing, and expansion to new markets. Culverhouse highlights Skytap’s partnership with IBM, and alludes to forthcoming work with VMware.

The 170-person company has its origins at the University of Washington, where in the spring of 2006, computer science professors Hank Levy, Steve Gribble, and Brian Bershad, and a PhD student, David Richardson, “were working on the underlying networking and compute technologies that would help power the cloud,” recounts Madrona managing director Matt McIlwain in a blog post. “As this group discussed the potential customer needs their technology could help address, we decided to found a company.”

Washington Research Foundation and Bezos Expeditions, the venture investing vehicle of the Amazon founder, also provided seed funding for what was originally called Illumita.

McIlwain also plugged Madrona’s track record in backing companies for the long haul from founding to public stock offering.

“It is interesting to note that the three Madrona backed companies that went public in the past 12 months were part of the Madrona family on average for thirteen years at the IPO date,” McIlwain writes, referring to Apptio (September 2016), Impinj (July 2016), and Redfin (July 2017). “We look forward to seeing what happens in two years when Skytap celebrates their thirteenth birthday!”

Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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