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Venture capital firm back in data center market: Why?

By Chuck Moozakis

Private equity investment firm M/C Partners has a long pedigree in telecommunications investing. The Boston-based firm, formerly known as Media Communications Partners, has overseen more than $1.5 billion in placements over the past two decades as it focused on companies spawned from the landmark Telecommunications Deregulation Act of 1996.

So, when Managing Partner Gillis Cashman talks about the firm’s latest investment–$50 million equity funding in data center services company Involta—his thoughts bear at least a cursory listen. Why, after previously investing in heavyweight companies that included Metro PCS and Level 3 Communications, does M/C now believe Involta, with just a handful of data centers in towns such as Duluth, Minn., and Marion, Iowa, is a good bet?

The simple answer? Application performance. Or more specifically, the lack thereof.

“There is a view in cloud computing that data centers are now becoming commodities and that proximity doesn’t matter; you can host your servers anywhere,” Cashman said. But concerns about application performance, and to a lesser extent security, are inhibiting cloud’s success, he said. “When you think about application performance, it really requires a different architecture, where you need to get those servers and applications very close to the end user.

“Instead of 50 servers being in a data center in the middle of nowhere, now what you need is 50 servers at 50 data centers close to the edge where the redundancy is in the network itself.”

And, Cashman said, those DCs should be located where the need is greatest: to serve enterprises in communities that are not served by Tier 1 or Tier 2 providers. These companies, he said, still have mission-critical applications, but they can’t get the service-level agreements they need to ensure their employees and customers are getting the application performance they deserve.

“There is far more insourcing going on in smaller markets,” Cashman said. “The reason is they either don’t trust the facilities in the market or there are no facilities in the market, so they are forced to deploy their applications internally.” To target these types of customers, Involta builds a dedicated fiber link from the DC to the enterprise, effectively creating a leased line. “Performance across this network is guaranteed because it never touches the public Internet, and to me, that is a critical factor that will drive more outsourcing [to data centers]. You need to have that infrastructure in place to effectively place these private cloud architectures.”

Ensuring that Acme Manufacturing in central Iowa has the same broadband capability and application performance as XYZ MegaCorp. in New York City is smart business–and as M/C Partners almost surely agrees, it’s good business, too.

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