Following up on a previous raise on Republic, NanoVMs is raising through a convertible note with a 1% discount rate that will reach maturity in two years. For this raise, the company has a valuation cap set at $20 million — a significant lift over last year’s $12 million. This amount is high in comparison to other early-stage companies currently seeking funding. NanoVMs low revenue from last year also does not help to justify a $20 million cap. Despite their low percentages, the company’s price score is bolstered by the presence of a discount rate and interest rate for investors. Thus, NanoVMs scores well in the price metric.

The need for data storage is growing all the time, and NanoVMs has managed to settle into a comfortable spot in that expansive market with practically no competition. The global DevOps market was valued at more than $4 billion in 2019. It is expected to grow at a CAGR of 20% for the next seven years to reach $17 billion by 2026, North America representing the largest part of that market. The adjacent cybersecurity market, which NanoVMs is addressing with the security applications of unikernels, is even larger. Just the North American share of that market came in at $21.14 billion in 2019, and it is growing at a more sedate but still significant rate. Given the strength and growth of both these markets, NanoVMs scores very strongly in the market metric.

CEO and founder Ian Eyberg boasts 13 years of experience working in software engineering, starting with the small Missouri-based telecom company Socket. He wrote and distributed a pay-per-view (PPV) ad network in 2010, continuing a trend of building up complex systems, and continued to work in software engineering until he founded NanoVMs in 2015.

Eyberg is bolstered by kernel engineers Will Jhun, Justin Sanders, Francesco Lavra, and Fabio Ferreria. Each of these engineers boasts similar or longer records of working in data storage and networking compared to Eyberg. Sanders, for instance, got his start working for Eaton Corporation as a system analyst. He spent nearly seven years working with computer data storage vendor Coraid, after which he turned to contract software development work. Each of these engineers holds the expertise and experience required for investors to be certain they know what they’re doing. Although the company is being advised by entrepreneurs like Henrik Rosendahl and is supported by notable venture funds, the team notably does not include dedicated marketing and sales staff yet. This lack of role diversity is a mark against the company. Thus, the team score for NanoVMs is its lowest across all five metrics.

NanoVMs unikernels are a promising and largely unparalleled offering. CEO Eyberg holds two patents protecting its tech and has filed four. Because NanoVms did not invent unikernels, it is possible for other companies to potentially replicate what the company is doing. Major DevOps market participants however — like IBM, Amazon Web Services, and Microsoft — are not providing similar products to what NanoVMs is. Indeed, NanoVMs may operate in conjunction with their services. The product helps prevent traditional hacking and works with existing product infrastructure, which can make it an extremely attractive offering to open-minded enterprises. Thus, the differentiators score for NanoVMs is very strong.

NanoVMs is still in the pre-profit stage but has begun to take in revenue through SaaS licenses for its Nanos C2, just-unveiled NanoVMs Radar, and support package subscriptions. In 2019, revenue reached $32,100 but then dipped slightly in 2020 for $8,983. Still, the company has significantly built up its assets and cash reserves. It has done this largely through $2.4 million in funding, some of it from the US Air Force. NanoVMs has been working to establish its recognition across the healthcare, finance, energy, telecommunications, and government markets, and it is meeting with success. Notably, it ran product trials with Fortune 500 pharmaceutical company Amgen. Its product releases are excellent indicators that the company is moving towards its sales goals, though a significant revenue decrease is concerning for any startup. Taking all these details into account, NanoVMs scores highly in the performance metric.

While NanoVMs unikernel products nearly eliminate risk of data exposure, the company is not especially protected from the various pitfalls that can befall a startup. Note again that NanoVMs team, while decidedly fleshed out on the software development side, is lacking in the kind of diversified sales, marketing, and other kinds of employees the business will eventually require to be successful. It also features a solo founder. If Eyberg leaves the company for any reason, NanoVMs would likely struggle to continue. 

Even with its significant levels of fundraising, NanoVMs has incurred massive costs that have translated to nearly a million dollars in long-term debt. This will need to be repaid through profit before the business can see significant returns and before investors themselves can see those returns. Furthermore, NanoVMs has taken years to get to this point and will likely need more years to fully scale its sales and distribution networks. While NanoVMs success in the long-term could be significant, investors will need to be patient.

Concerns about NanoVMs’s long-term viability are primarily centred around the willingness of the market to adopt unikernels as the next advancement from containers for running applications. It will be important for this to happen while NanoVMs remains unchallenged in this space. The company’s decrease in revenue in 2020 is also concerning. Given that the United States and the world have seen a significant rise in remote work and increased awareness around data security, those numbers should have gone up, not down.

NanoVMs’ unikernel platform is significantly ahead of existing product offerings in terms of security and simplicity with an attack surface 0.1% the size of traditional Linux and no capacity to run more than one program on a server. To anyone familiar with cloud security systems, this is a significant advance. The market for cybersecurity and DevOps software is large and growing, giving NanoVMs plenty of room to claim a significant niche. Despite a slight drop in revenue, the company has achieved multiple years of positive revenue as it developed its highly differentiated offering. If NanoVMs can maintain its lead with unikernels — as companies like VMware did with prior advancements — it could easily reach millions in annual revenue and potentially much more. 

NanoVMs is bringing the next stage of cloud computing to the market with its Nanos C2 and NanoVMs Radar products, using the power of unikernels to dramatically improve on traditional Linux systems. These products, which can be adapted to existing program infrastructure with little hassle, are efficient, fast, and highly resistant to hacking.

As an unchallenged pioneer, NanoVMs has significant room to grow, but it will depend on winning the trust of existing companies to switch to the unproven unikernel system. That said, product offerings are strong, the founder and his team are highly experienced, and progress appears to be proceeding on pace with recent product unveilings. NanoVMs was a Deal to Watch in its previous raise, and we see no reason to revise that rating now.

For these reasons, NanoVMs has been rated a Deal to Watch.

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Analysis written by Benjamin Potts.