Costanoa Venture Capital: A $100M Fund For Startups That Develop Cloud Services For Business And Consumer Markets

Sutter Hill Ventures Greg Sands has left the firm to launch a $100 million fund to invest in early stage, cloud services for businesses and consumers that leverage data and analytics. Costanoa Venture Capital is launching with ten initial investments. Overall,  investments in portfolio companies will range from $500,000 to $3 million.

The mission is to help provide early stage entrepreneurs with a combination of “right-­sized” amounts of capital and support that entrepreneurs can’t get from angel investors and venture capitalists. Angel investors often invest less than $250,000. They often have little or no role to play in the company’s development. The larger venture capital firms have to be careful what role they play in a company’s long-term strategy in consideration that they may not participate in a follow-on round.

Sands spent 13 years at Sutter Hill. Investments he participated included Merced Systems; QuinStreet; Feedburner; AllBusiness; Return Path, and Youku. Prior to Sutter Hill, Sands was the first hire at Netscape Communications after its founding engineering team.  He was the company’s first product manager, wrote the initial business plan and can claim the fame of coming up with the Netscape name.

Costanoa will look for investments that have use data to create high-value applications. The fund also sees the opportunity to create consumer style user interfaces that use the cloud to deliver business or consumer services.  The need for better apps that help marketers manage big data will also get attention from Costanoa.

Costanoa has to date invested in Datalogix; DemandBase; Guardian Analytics; Inflection; Intacct; iSocket; Lex Machina; LinkSmart; Return Path, and Risk I/O.

Sands sees an opportunity to play a larger but not too obtrusive role with the companies Costanoa funds.  Its mission fits with the need for more services that better leverage data that can be aggregated and analyzed on the fly.

But it’s a funny time to launch a fund. The enterprise is confused about the cloud.  Using data effectively requires customers to take a look at their overall infrastructures. The market is not quite ready for that shift. Companies are struggling with virtualization and how to manage the consolidation of its data centers. Innovation is the name of the game in the startup world but customers are still sorting through how to balance its legacy infrastructure and what innovation to embrace. What results is an over-supply of services and questionable demand on the part of customers.