Cloudflare last week announced a $1.25 billion funding program for startups that build on its software, Cloudflare Workers. But this isn’t a corporate venture fund and that sum is not company money.
Rather, it’s an initiative in which the cloud infrastructure company curates a group of its startup customers and presents them to venture capitalists, each of which committed $50 million to back companies building on Cloudflare Workers. The list of 26 venture funds includes big players like NEA and Boldstart and smaller firms like Pear VC. Cloudflare CEO Matthew Prince told me that number has continued to grow since the project was announced in September.
The reason this is interesting is that while public companies have been drastically increasing their presence in startup funding in recent years, it’s largely been through one of two playbooks: Companies were either setting aside a sleeve of capital on their balance sheet to back startups in adjacent or complementary sectors to their own, or they were launching an accelerator program.
This strategy from Cloudflare feels fresh. And if successful, it could prove to be a pretty smart bet. The program essentially helps funnel money to its customers, thus securing their need for the platform, while also attracting startups to consider building on Cloudflare over other platforms — without Cloudflare having to spend anything. It’s worth noting companies entering this program, regardless of whether they get pitched to VCs, do get multiple software features for a year for free.
But will a corporation like Cloudflare be a good matchmaker? Prince seems to think so — he told me that the idea for the program came from the company’s conversations with venture capitalists.
“We would hear from various VCs saying, ‘More and more companies that we are talking to are using your platform,'” Prince told TechCrunch. “They said, ‘If you hear about really interesting companies using Workers, we’d love [for you] to refer them to us.'”
Venture capitalists seem to think they are up for the job, too. Prince said he initially hoped for $100 million to $250 million in commitments, just to have something substantial to announce, but VCs were quick to jump in and pledge significantly over the target.
VCs like Boldstart partner Shomik Ghosh said that he wanted to be involved because his firm already backed companies that build on the software, including API startup Liveblocks and another in stealth.
“We are always trying to see companies and founders trying to build differentiated products,” Ghosh said. “We think there is stuff within Workers that enables you to do a lot of stuff close to the edge, basically distributed workloads as close to the user as possible.”
Chase Roberts, a partner at Vertex Ventures, said that even though the firm hadn’t yet backed a company using Cloudflare, he was impressed by its capabilities and liked the idea of getting to look at a vetted group of companies. He added that while AWS and Nvidia have tried a similar approach, theirs weren’t curated, which, in his opinion, made them less attractive.
So, will public companies like Cloudflare be good at vetting and selecting potential investments for VCs? Clearly the venture community thinks so, regardless of whether they have worked with a startup on the platform before.
If a startup using Workers gets funding through this initiative and does end up being successful, it truly is a win-win situation: The VC makes money off the return and Cloudflare gets a well-funded customer to keep using its product. If this initiative starts to show signs of success, it could start a ripple effect of corporations looking to present their customers to gain potential investment from VCs.
I tried to think of who else could run a program like this. The first thing that came to mind was no code developer platforms like GitHub (owned by Microsoft) and GitLab. I wouldn’t doubt interesting — or venture-backed— startups are likely using their platforms to build. Plus, GitLab already offers a program for Y Combinator graduates.
Regardless, it is refreshing to see a corporation try to bring a new approach to this sector, and I’ll definitely be waiting in the wings to see if corporations like Cloudflare really do make good matchmakers — and if their stamp of approval on a startup translates to a venture check.