Snowflake IPO Raises Record-Setting $3.4 Billion for Software Industry

Snowflake, the cloud-based analytic data warehousing startup, became the biggest software IPO in history. Its shares debuted on the New York Stock Exchange (NYSE) on Wednesday, September 16th. It also set a record for becoming the largest company to ever double its share price in a market debut. Backed by the likes of Warren Buffett’s Berkshire Hathaway and Salesforce.com’s investing arm, Snowflake made an impressive debut.

Snowflake IPO
Snowflake IPO
Image credit: Bloomberg Finance LLP

The startup priced its IPO on the night of Tuesday, September 15th at $120 a share. This price was already above the expected range of $100 to $110. Due to strong demand, Snowflake’s shares opened Wednesday morning at $245 a share. The shares, which trade under the ticker symbol “SNOW”, finished the day with a nearly 112% gain and raised around $3.4 billion from the IPO. The 28 million shares offered in the IPO represent just 10% of the company’s shares outstanding.

Snowflake offers businesses new, cloud-based ways to store and access data, providing what is often dubbed “data warehouse as-a-service.” It has taken on other competing cloud infrastructure providers including Amazon, Microsoft, and Google. Snowflake has won significant amounts of business from companies transitioning from legacy databases like Oracle into the cloud. However, it also faces competition from Amazon’s cloud-based data warehousing product called Redshift, which is part of Amazon Web Services (AWS). Interestingly, Amazon also happens to be a major partner to Snowflake as it competes with it on many fronts. Snowflake has agreed to spend a minimum of $1.2 billion on Amazon cloud infrastructure services through 2025. Snowflake is heavily reliant on AWS as a cloud user. To lessen its reliance on AWS, Snowflake also uses services from Microsoft Azure and Google Cloud Platform.

The startup came out of stealth mode in 2014. Although Snowflake has yet to make a profit and burns through cash, its sales are growing rapidly. In 2019, it reported well over $100 million in revenue. Over the past four quarters, Snowflake’s revenue has grown by an average of 141% on a year-over-year basis. Its clients include 146 of the companies in the Fortune 500, and it currently has over 3,100 customers.

The cloud startup began in 2012 in San Mateo, CA. The company has only recently attracted widespread attention. But it had been attracting the attention and dollars of venture capital firms for a number of years. The largest venture capital investor in Snowflake is Sutter Hill Ventures. Sutter now owns approximately 17% of the class B shares of the company following the IPO. Snowflake has a dual-class share structure, with class B shares guaranteed 10 votes per share. A number of other prominent venture capital firms hold large stakes in the company. They include Altimeter Partners, Iconiq Strategic Partners, Redpoint Ventures, and Sequoia Capital.

Snowflake made headlines as one of the hottest tech IPOs of the year. Yet for CEO Frank Slootman, it is the third tech company he has successfully taken public. His first tech IPO, Data Domain, occurred 13 years ago and his second, ServiceNow, occurred 8 years ago. Following the ServiceNow IPO, Slootman made over $550 million. The board appointed Slootman CEO of Snowflake just 16 months before its IPO this September. As a result of his 5.9% stake in Snowflake, he has become a newly minted billionaire.

Slootman is a rare professional CEO in an industry dominated by founder-led startups. Originally hailing from the Netherlands before moving out to Silicon Valley in 1997, he is an operational expert. Before Slootman, the company was led by Microsoft veteran Bob Muglia. Slootman replaced Muglia April 2019 in favor of a CEO that could grow the startup at an even more aggressive pace. As one employee said, the board viewed Muglia as someone that could bring Snowflake to the moon, while Slootman was someone that could take them all the way to Mars. Slootman imposed cuts on frivolous spending, such as corporate ski trips and expensive lunches, and focused on growing sales faster.

Slootman’s operational efficiency and structural changes quickly paid off. When Slootman joined the startup in April 2019, it was valued at around $4 billion. By February 2020, its valuation spiked to $12.4 billion. That $479 million fundraising round in February was led by Salesforce’s corporate venture arm and Dragoneer Investment Group. Saleforce’s involvement has also helped Snowflake with building its content strategy. Salesforce owns Tableau, which provides interactive software visualization tools for relational databases and other data functions. The data collected on Salesforce customers can be combined with the data stored inside Snowflake, and then sent to Tableau’s visualization software.

Cloud software companies have thrived in the COVID-19 economy. Amid the rapid push towards digital transformation, Snowflake has been able to meet surging new business demand. Its tools help manage remote workforces and process data. For example, the healthcare industry has increasingly become reliant on Snowflake’s data analytics capabilities to store and analyze data about the coronavirus. Overall, the company has seen an uptick in demand from customers across a wide variety of industries. This trend that is almost certain to continue in the future.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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