Last week was the busiest for IPOs, with 15 offerings that raised a total of $8.7 billion. There were also eight SPACs (Special Purpose Acquisition Companies) that hit the markets. Yet it was the Snowflake (NYSE:SNOW) deal that got much of the attention. The company raised a hefty $3.36 billion, which was the highest amount for any software company ever. On the first day of trading, the Snowflake IPO soared 112% and the market cap reached about $67 billion. Not bad for a company that was founded back in 2012.
Snowflake operates a cloud-native database platform. And the traction has been astonishing. During the past fiscal year, revenues spiked by 174% and the dollar net retention rate was 158%. There are also more than 3,100 customers and 56 generate more than $1 million on an annual basis. Note that the Net Promoter Score (NPS) is at 71, which is at levels for companies like Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA).
But getting to this point was far from easy. Snowflake had to take on mega competitors like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). In fact, in the early days of the company, there was lots of skepticism from venture capitalists.
So then, what did Snowflake IPO do to be enormously successful? What were the right strategic moves? Well, let’s take a look at three key factors:
Snowflake IPO: The Massive Market Opportunity
Data is increasingly becoming a competitive advantage in business. It allows for better analytics and insights as well as sophisticated AI (Artificial Intelligence). With a strong data foundation, a company can personalize customer experiences, anticipate market trends and customer needs, and help improve strategies. And as seen with companies like Uber (NYSE:UBER), data can be essential for disrupting industries.
Then how big is the market opportunity for Snowflake? It’s truly massive. According to the company’s own estimates it is about $81 billion.
Yet this could prove to be conservative. The reason is that Snowflake is available to companies of any size. The company also uses a business model that is highly favorable, which is based on the usage of the service.
While data is certainly extremely valuable, it is also difficult to leverage. The primary reason is that legacy systems are complex to use – often requiring trained staff – and there are a myriad of silos, which make it difficult to get a 360-degree view.
But Snowflake’s cloud-centric approach has been key to solving the problems. Keep in mind that it can take just a few minutes to spin-up a data warehouse and also to consolidate data from different platforms, such as from AWS, Azure or Google Cloud. There is virtually no need for ongoing maintenance and customers can get results much quicker with their analytics.
It definitely helps that Snowflake can ingest huge amounts of data and handle different types of structured and semi-structured data. Moreover, by separating the compute and storage layers, there is little latency when getting results.
The standout management team has been critical for the huge success of the Snowflake IPO. While the company’s founders had extensive experience with the database market – such as by working at companies like Oracle (NYSE:ORCL) and Google – they also recognized their own limitations. Let’s face it, the founders did not have much experience on how to scale an organization.
So they were smart to bring on Bob Muglia as the CEO in 2014. He took the company from negligible revenues to $100 million. Prior to joining Snowflake, Muglia was an executive at Microsoft and Juniper Networks (NYSE:JNPR).
Then last year, Snowflake replaced Muglia with Frank Slootman. He is one of the top CEOs in Silicon Valley, having built breakout companies like Data Domain and Service Now (NYSE:NOW).
According to a blog post from Sequoia, a major investor in Snowflake: “Having worked with Frank on the boards of ServiceNow and Medallia, we knew Snowflake was getting an insightful leader with an extraordinary command of details. Indeed, over the past 18 months, Frank’s operational rigor, relentless focus on serving customers and deep understanding of the business itself has prepared the company well for this week’s milestone.”
Granted, with the stretched valuation on Snowflake, there will still be lots to prove. But for now, the company seems to have the right technology to address an enormous opportunity and the right management team to continue to grow.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.