I regret missing out on the Snowflake IPO.
That’s it. That’s the tweet.
If you are anything like me, you have been confused about your self worth ever since that fateful day. For those that are still in the dark, Snowflake, which sells cloud-computing technology for storing and analyzing data, went public on September 16th raising $3.4 billion dollars at a $33 billion dollar valuation, setting a record as the largest U.S. software IPO ever. It’s kind of a big deal. And a huge win for Sequoia, Sutter Hill and Redpoint to name a few of the earlier stage investors.
The IPO priced its shares at $120. As of today there has been over a 100% increase in stock price as $SNOW is currently selling for $285. To be clear, this is a lesson for those, like myself, who are prone to say ‘it’s too late’ to invest. With the right companies, it is never, ever too late (but also, do your research). To drive that lesson home even further, Snowflake was valued at just $12 billion in February when it completed its last private funding round, meaning those series G investors (aka Salesforce Ventures, Meritech and Dragoneer) have registered a seven times gain if they held their shares through today.
And finally, just to deliver some context, IBM currently has a market capitalization of $112 billion.
So, the goal of this blog post is not to make you feel bad about missing out, it’s actually to study Snowflake's success and it’s counter parties in order to find similar growth stories in the future.
While I am a seed/series A venture investor, I will not only be evaluating potential opportunities in early stage venture but also tracking late stage private companies in order to make some assumptions on some potential upcoming IPO’s. These thoughts are entirely my own and are not connected to any organization. This is not investment advice.
Ultimately, this is just the beginning of major data warehousing/cloud investment opportunities be it public or private. While two of the four key data pillars, data integration and machine learning, have reached full maturity, the lifespan of cyber security companies within data are still nascent.
Let it $SNOW (haven’t heard that joke before, have you?)
To back peddle a little bit, let’s look again at Snowflake.
I won’t get into the nitty gritty of what makes Snowflake an important platform frankly because I am not equipped to do so. However, I will say, from my research, it appears that in order for Snowflake to accommodate its lofty valuation, it must capitalize on the opportunity to rethink the narrative behind the data warehouse infrastructure.
The centralized warehouse platform model is structurally ill-suited to support multifaceted digital transformations. Data warehouses are notoriously expensive, cumbersome and resource-intensive. As a result, the future of data architectures will be to move away from a large, centralized warehouse or data lake model to a highly distributed data sharing system that puts power in the hands of domain experts in the line of business. This will end up transforming the way organizations approach data monetization. By putting forth (and demonstrating) a simple data warehouse alternative that could be spun up quickly, Snowflake has been able to gain traction, demonstrate repeatability and attract the capital necessary to scale to its vision.
With that said, there are a number of criticisms of Snowflake out on the market. 1) Snowflakes prices are based on consumption, as a result the monthly bill is often unpredictable. With that said, this is the nature of the business and is not unique to Snowflake. 2) If you want to isolate higher-performance workloads with Snowflake, you just spin up a separate virtual warehouse. It works generally but will add expense. 3) At the end of the day, Snowflake is based on a caching architecture. Caches work well when the size of the working set is small. Caches work less well when the working set size is very large. As mentioned above, this is actually one of it’s key benefits and reasons it has been able to scale. 4) Snowflake is pretty much optimized for read-only data. So where this is maybe an issue is real-time decision-making and AI inferencing. Note, Snowflake may be able to develop products or acquire technology to address this opportunity.
Want to understand Snowflake’s model a bit better? Might I suggest this article which does a way better job of explaining what is going on.
Early acquisition plays
Now let’s talk about business strategy. What’s particularly interesting about Snowflake is not only did they IPO this year, but they also had an acquisition six months prior, in the heat of a pandemic.
In July of 2020, Snowflake acquired Cryptonumerics, an enterprise software company based in Toronto specializing in enabling businesses to create privacy protected datasets with quantifiable privacy risk, for $7.1m
Founded in 2018, the company made its Finovate debut last spring at our west coast conference. At the event, company co-founders Holboke and Bhatti demonstrated CryptoNumerics’ CN-Protect technology that leverages differential privacy and AI to allow institutions to analyze consumer data while maintaining CCPA, GDPR, and HIPAA compliance.
Last fall, CryptoNumerics unveiled its Re-Identify solution, which enables companies to determine whether or not the identities of users in their datasets are secure. Based on CryptoNumerics’ CN-Protect, Re-Identity helps deal with a problem in typical de-identification techniques such as masking and tokenization which can fail to completely protect data.
“Our early enterprise customers are excited to partner with Cryptonumerics because we not only solve their privacy concerns but we also enable them to leverage their data assets to build cross enterprise models that create new revenue opportunities,” CryptoNumerics executive chairman and co-founder Ashfaq Munshi said.
Prior to this, CryptoNumerics had raised $2.5m in funding from 11.2 Capital, Data Capital Management, and Lux Capital.
Clearly, Snowflake chose to make this investment in order to add a security layer to its business model. Without knowing anything about the deal, we can infer that this was a really good opportunity given it’s incredibly reasonable cost (average series A valuation in 2019 was $22m).
“Let me know how I can be helpful” - $SNOW
On top of this, Snowflake made another very strategic move to open up its own venture arm- Snowflake Ventures. This will give them the opportunity to see early stage opportunities in the data space opening up potential acquisition opportunities early on. However, it is interesting that this will require them to go head to head with some of their prior investors.
So far they have only made two investments- a late stage investment in DataRobot and an early stage investment in Hunters Cyber. Both just a few weeks ago.
It’s worth talking about the more interesting one, Hunters. Hunters Cyber is an autonomous threat hunting solution detecting cyberattacks that bypass existing controls in every IT environment. Hunters.AI extends threat detection and response across every attack surface – a capability increasingly known as ‘XDR.’
There’s no shortage of well-established threat detection solutions on the market, so why Hunters?
The security experts at Hunters recognized that effective threat detection and response requires a data platform that delivers virtually unlimited performance and scale. They were also early to identify that Snowflake’s architecture is uniquely suited to the data volumes and complexity of today’s security analytics. With the full power of the Data Cloud available to each Snowflake customer, Hunters found that they can run their sophisticated automation directly on the customer’s data platform.
We believe that this is the new paradigm for security analytics. Rather than building vertically integrated silos, the security vendors that succeed in the Data Cloud era will be those that bring their capabilities to the customer’s data platform. It takes confidence for a vendor to let go of their data silo but Hunters has proven that this model is not just good security posture, it’s good for rapid growth and adoption.
XDR is one of the hot trends in cyber. XDR provides cross-layered threat detection and response. Stealthy threats evade detection by hiding in between security silos amid disconnected solution alerts, propagating as time passes. XDR breaks down these silos using a holistic approach to detection and response. XDR collects and correlates detections and deep activity data across multiple security layers – email, endpoint, server, cloud workloads, and network. Automated analysis of this superset of rich data means threats are detected faster, and security analysts are equipped to do more thorough investigations and take quick, subsequent action.
Like so, I imagine we will be able to look to Snowflake’s investments and acquisitions to ruminate on trends and future developments in data.
$SNOW’s buddies, partners & friends
With all this said, I believe one of the primary places we can find future investments in the data space and look into future trends is via Snowflakes integrated partners. Snowflake has bucketed their partners by five categories- Business Intelligence (BI), Machine Learning & Data Science, Security & Governance, SQL Development & Management and Native Programmatic Interfaces. Furthermore, I feel it’s valuable to bucket these partners based on their relative stage of growth.
Public Market (Stonks)
As expected, many of the Snowflake integrated partners are mature, publicly traded enterprises. The $SNOW companies that are currently publicly traded are: SAP ($SAP), Talend ($TLND), Domo ($DOMO), Microstrategy ($MSTR), Alteryx ($AYX) and Datadog ($DDOG). The success of these stocks in the past year is truly a mixed bag, with Domo, Mircostrategy and Data Dog seeing an average 134% increase, with most contribution due to a major pop the past two weeks. SAP, Talend and Alteryx have been, how do we say, struggling.
DataDog probably being the most renowned of the bunch due to its formative capital from Index Ventures and Amplify Ventures. DataDog surged 39% in its stock market debut last September climbing to $40.50 out of the gate, up from the $27 IPO price, valuing the company at $10.9 billion. It now trades over $100.
If anything, this should heed notice that it is worthwhile to keep tabs on the up and coming integration companies.
Potential IPO’s (Get ready kids!)
This leads us to the grouping of companies within Snowflake integration partners worth watching for potential future IPO: Snaplogic, Trifacta, Workato, Sisense, Thoughtspot, Databricks, Dataiku, DataRobot, Domino, H20.ai, Fivetran, Datameer, Heap, Alation and Collibra. These are the companies that have raised over $80m in venture capital and are somewhere post series C in fundraising. Some of these have raised as much as $800m (Databricks) but on average in the cohort each company has raised about $302M. Looking at trends within the cohort, a majority of these are Data Integration or Machine Learning companies. A majority of these companies are also based in SF, Sisense, Dataiku, Collibra DataRobot being the outliers.
The latest stage I would guess should IPO in the next year are DataBricks, DataRobot, Sisense and Collibra. Set your google search terms tickers on these guys. You’ll want to be on the lookout.
Acquisitions, shmackquisitions
Alternatively, there have been some really big acquisitions in this space as well. The list of companies that were acquired either by private equity or by competitor companies include: Boomi (Dell), Pentaho (Hitachi), Stitch (Talend), Wherescape (Idera), Jsonar (Imperva), Aginity (Kairn Corporation), Datalytyx (Mphasis), Qubole (also Idera), Dataguise (PKWare), Informatica (Permira), Qlik (Thoma Bravo) and Erwin (Parallax Capital). Some of the larger ones worth showcasing are to follow.
Looker, an enterprise platform for business intelligence, data applications, and embedded analytics, was acquired by Google for $2.6B in June of 2019. Shortly after this, Tableau, an interactive data visualization software company, was acquired by Salesforce for $15.7B also in June of 2019 in an all stock deal. And of course there have been billion dollar private equity exits as well, for example, Tibco, a leading independent provider of infrastructure software,, which was acquired by Vista Equity partners for over $4Bin 2014.
Lastly, a platform that is not a Snowflake partner but worth highlighting as a notable acquisition in the space would be Segment. Segment is a customer data platform (CDP) that helps you collect, clean, and control your customer data. Honestly, Segment would have been a pretty damn good acquisition for Snowflake but unfortunately they lost out to Twilio. A little background on the Segment acquisition:
To some extent, that’s what drove Twilio to acquire Segment for $3.2 billion today. When you get down to it, the two companies fit together well, and expand the platform by giving Twilio customers access to valuable customer data. Chee Chew, Twilio’s chief product officer, says while it may feel like the company is pivoting in the direction of customer experience, they don’t necessarily see it that way.
“A lot of people have thought about us as a communications company, but we think of ourselves as a customer engagement company. We really think about how we help businesses communicate more effectively with their customers,” Chew told TechCrunch.
And the best for last
By and large, there are much fewer early stage Snowflake integration partners. This is common. But it’s interesting that there aren’t many companies capitalizing on the opportunity. Becoming a partner of Snowflake would mean actually utilizing the customer acquisition opportunity being hosted on their site which can be really beneficial in early stage growth. The earliest stage partners are Rivery, Metabase and Zepl, all have raised a little money but are due for A rounds.
With that said, there are loads of earlier data companies coming out of the woodwork capitalizing on new solutions for this changing data infrastructure from Datafold to Jitsu to Noteable.
From an early stage VC perspective, the number one venture capital firm that seems to be actively investing in the data space is New Enterprise Ventures. They seem to be the key player in a majority of the listed partners deals and are actually the only members on the cap table for Metabase with $21M raised to date. Pretty intense.