What's 🔥 in Enterprise IT/VC #268

Open source infra on 🔥 with 🪳 + Sysdig rounds...on flip side, lessons learned on how too much 💰 too early can kill a company...

Dec 18, 2021

The flight to 🔥 enterprise infra companies and high quality continues with Cockcroach Labs raising $278M at a $5B valuation, more than doubling in less than 12 months 😲 and Sysdig raising $350M at a $2.5B valuation!

Why may you ask?

First up is 🪳 (distributed SQL cloud db). Huge market and once again, the transition to open source downloads to ☁️ is 🔑 - here’s more from their blog:

The company has tripled its annual recurring revenue in the last year, seeing a 500% growth in cloud revenue in the last quarter alone as customers shifted spending to the transactional database-as-a-service. More than 50% of the company’s customers now run their applications on the CockroachDB Dedicated fully managed cloud service, and the CockroachDB Serverless beta launch has already brought well over 10,000 new users to the platform. Cockroach Labs continues to build a loyal following among developers with over 22,000 Github stars and more than 500 open source contributors. With 100% YoY growth in headcount, Cockroach Labs continues to expand with offices in New York, San Francisco, and Toronto plus “clusters” in Denver, Seattle, London, and other cities.

Here’s more on Sysdig (container + k8s security)

This round of funding is a reflection of investor conviction in our vision and in the momentum that we see in our business as we execute against this vision.
Our security annualized revenue run-rate (ARR) has more than tripled over the last year.
Our customer base has grown to nearly 700 customers, spanning large enterprises, government agencies and mid-sized companies. The average annualized spend of our top 50 customers is more than $800K, illustrating the scale of deployment within large global enterprises.
Our net dollar retention as of the most recent fiscal quarter is 149%, illustrating the pace at which customers are expanding the footprint of their modern cloud applications.
Most customers deploy our platform for multiple use-cases as we have innovated rapidly to expand the functionality of our platform. Earlier this year, we added the ability to manage privileged cloud access to our platform. We also acquired Apolicy, expanding the Sysdig platform to include infrastructure as code (IaC) security.
The open source movement that we started continues to thrive as Falco downloads increased to 37 million – an increase of 335% since it became an incubating project in the cloud native computing foundation (CNCF) in January 2020.

And this halo effect for enterprise infra and dev first companies continues to day one where I’m regularly seeing rounds that should be $3-4M in size balloon to $8-10M. And then you have some Series B rounds like this 🤯 in the OSS and dev first space where $1M of ARR can equal a $1.5B valuation!

Airbyte is said to have targeted a valuation of $1.5 billion to $1.6 billion, multiple sources told Forbes. The funding round comes while the company’s annual recurring revenue is less than $1 million, according to the sources. Crossover funds Coatue and Altimeter Capital are believed to be investors on the round, according to one of the people with knowledge of the matter.
Investors have demonstrated a willingness to fund companies backed by strong open-source usage, even if the revenue is sparse; for example, Anyscale recently raised at a $1 billion valuation despite reports that its annual recurring revenue was less than $5 million.

I keep saying, but will repeat myself, some folks can handle the extra cash and high expectations and others cannot. With that, I encourage you to read the 🧵 below from Joe Fernandez from Klout which at the time was one of the hottest startups out there but one of the biggest issues that killed the company was raising too much 💰.

This will likely happen to many companies in 2022.

Ed Sim @edsim

👇🏼Some amazing lessons learned from 2008...and some reminders for founders...too much 💰 at too high a price too early can be a ⚓ and not a blessing...

Joe Fernandez @JoeFernandez

I took Klout from being one of the hottest startups in the world to lucky to be acquired in less than two years. Here is everything I learned almost killing my company - https://t.co/U0HXnmkbkc

Ed Sim @edsim

@JoeFernandez "More than anything though I learned that if you raise money at a high valuation and you start losing momentum, your life is about to be extremely not fun. Almost any mistake you make as a founder can be fixed, except that one."

And we also can’t forget that these high valuations will need to lead to higher ones to have venture capitalists continue to pump 💰 into companies.

Some of the leading research analysts on Wall Street are actually downgrading a number of high flyers because of high expectations and inflation.

In a new 2022 outlook report on software technology released earlier this week, JPMorgan analysts including Sterling Auty and Jackson Ader lowered their ratings on 13 companies, while upgrading just five. Inflation and concerns about interest rates have led investors to put 2021 behind them and focus more on the coming year. That’s drawn them out of high-growth, high-multiple stocks and into sectors that are generally viewed as more resistant to inflationary pressures and rate hikes.
“The reasons for the downgrades include a combination of limited upside to our price targets, valuation in light of risk that interest rates rise in 2022, adjusting discount rates for the current rate environment and re-evaluating reasonable cash flow expectations,” the analysts wrote.

As always, 🙏🏼 for reading and please share with you friends and colleagues.

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