M&A and Venture Funding Reports
SASI 2023 Data Management M&A and VC Funding Report
2023 Data Management M&A Review
Data Management M&A remains stuck in first gear with just 11 announced transactions in 2023 compared to 13 in 2022. As with 2022, 2023 was dominated by smaller tuck-in trades.
We attribute the M&A slow down to a few factors.
- A large group of venture backed data management companies were in operational and financial improvement mode in 2023. As with other IT sectors, there was a clear push to profitability by their investors or at a minimum, cash flow breakeven. The message was clear: If you do not have to sell in 2023, then don’t and hope that market conditions improve in 2024.
- Strategic buyers are pushing back on inflated paper valuations of VC backed companies and are also demanding more market proof points and a clear path to profitability, if not already there.
- Continued global instability with the Ukraine War and now the Gaza War dampened the appetite of many strategic buyers.
Looking forward into 2024, we see a potential uptick in M&A as a number of data manmagement start-ups have completed their restructuring and will be looking to exit in 2024. On the strategic buyside, we are already seeing a material increase in activity in the month of January. Yes, we still have two wars raging with no clear end in sight but buyers seem to be getting comfortble with the uncertainly coupled with a mindset that we cannot delay innovation and progress through M&A for another year.
The largest deal of the year was Rubrik’s acquisition of Laminar for an estimated $250M. Laminar brings a proven security posture management platform to Rubrik, showing that Rubrik is committed to a much broader data management and security strategy. BMC picks up Model9 showing that mainframe back-up is still relevant and while not high growth, mainframe systems are still being sold. In the AI storage area, Databricks, a cloud based data science platform, acquires early stage stealth company Rubicon, showing the importance of data storage for all things AI related. Expect more M&A around AI storage and data management.
Notable Transactions by Year
2023 Data Management Venture Funding Review
Data management venture funding drops to $440M as the pendulum swung from larger late stage rounds to smaller first rounds of funding. In 2022, there were five rounds north of $100M while in 2023, we just had VAST Data hauling in a $118M 5th round of funding. In 2022, there were just two 1st rounds of funding and in 2023, that number shot up to ten, which is the highest number of 1st rounds in ten years. The ten early stage rounds are certainly a positive sign that there is more innovation and disruption to come in data management. Regarding the disappearance of larger late stage rounds, call it a bit of a 2021 and 2022 hangover where average round size ballooned to around $65M and VCs were pouring money into unicorns with IPO dreams. In 2023, IPO dreams were put on hold and the push was on for these companies to get to cash flow breakeven ASAP. Hence, with no attractive exit options in 2023, it was survival time and making do with the cash you have on the balance sheet.
AI remains the hot topic and we expect more funding to flow into data management start-ups. VAST is emerging as a significant AI player, competing head to head with DDN and the larger systems vendors. Hammerspace, having raised a $56.7M 1st round is also making a lot noise around AI and the next generation data platform. Cloud data protection SaaS also remains hot with Alcion raising two rounds of funding totaling $39M along with Arpio raising a $8.2M 1st round and Datamotive hauling in a 1st round of $3.8M. A late stage round worth noting is object storage provider Cloudian, closing a $60M round which brings i’s total capital raised to $233.1M.
Top Venture Rounds by Year
SASI 2022 Data Management M&A and VC Funding Report
2022 Data Management M&A Review
M&A slowed to 13 announced deals in 2022, compared to 21 announced deals in 2021. While valuations and related multiples were not disclosed or estimated for 10 of the 13 transactions, our informal market discussions lead us to conclude that there continues to be a fair amount of opportunist “clean up” deals being closed at low valuations. The exception is Datto, who scored a 10X Pr/Rev multiple which is at the higher end of what we are seeing for data management SaaS companies. We expect to see continued “clean up” consolidation trades sprinkled with a few more healthy exits as we move into 2023. Once we get out of this market “FUD” period, deal multiples are likely to expand across the board.
Top M&A Transactions by Year
2022 Data Management Venture Funding Review
Venture funding totaled a respectable $1.1B across 17 rounds with an average round size of $65.1M, compared to $1.5B across 23 rounds at an average round size of $65.4M in 2021. For 2022, Software/SaaS start-ups raised 85% of the funding dollars. Dremio hauled in the largest round with $160M followed by WekaIO with $135M. For WekaIO, this raises their total funding to $379M and for Dremio, they are at $410M. Both are proving that the “go big or go home mentality” has not left the data management market. Not to be left out is Wasabi who secured a total of $140M of funding in 2022, bringing its total raised to $395M. Open source object storage player Minio raised $103M and seems to be finding a winning business model on monetizing their massive installed base. Also worth noting is one of the “O.G.” hyperconverged players, Scale Computing raising $55M while market leader Nutanix is out looking for a buyer. On a down note, Pavilion who just raised $45M in early 2022 has closed its doors. For 2023, we think data management venture funding will remain strong as data growth continues and there are plenty of opportunities for market disruption.
Top Venture Rounds by Year
SASI 2022 Cloud Native M&A and VC Funding Report
M&A slowed to 18 announced deals in 2022, compared to 33 announced deals in 2021. With the exception of Datadog, public buyers have pulled back from the deal table with PE and VC backed private companies now leading the charge. Of note, Snyk, a provider of cloud native security and testing solutions has picked up two more companies in 2022, adding to the three companies they acquired in 2021. IPO rumors have been circulating on Snyk but with the recent market pull back, it’s challenging to see them launching an IPO in the first half of 2023. Regardless, we see Snyk and the broader group of late stage private companies continuing with aggressive M&A strategies as they broaden their product platforms and add further differentiation and scale.
While valuations and related multiples were not disclosed for the 18 transactions, our informal market discussions lead us to conclude valuations premiums are down for 2022 and are likely to remain depressed for the first half of 2023. It’s also becoming clearer of who the market winners will be and those not in the top three are deciding rather quickly to join forces with a leader vs. being left on the sidelines. We are still in the early innings of cloud native adoption but we are now past the point of lofty valuations driven mainly by market promises and the associated “hype” of cloud native. The cloud native marketplace is simply maturing with business models getting solidified and customers now seeing the tangible benefits of cloud adoption.
Venture funding totaled $1.55B across 26 rounds with an average round size of $59.69M. This is significantly down from the $5.11B raised in 2021 across 36 rounds. Security/Networking led all segments with $557M in funding across 8 rounds while Monitoring/Logging was the second highest funded segment at $397M across 5 rounds. 10 of the 26 rounds were second rounds followed by first rounds with 9 total. The nine first rounds of funding were a bit of a surprise as we have already seen significant funding in each segment over the past 5 years with M&A consolidation in full swing starting back in 2020. On the other hand, we are seeing an expanded need for next gen scalable cloud native platforms that are enterprise grade. Hence, there is certainly room for innovation and disruption in targeted areas.
The top five rounds in 2022 totaled $827M or 53% of total funding. Grafana Labs, which provides cloud native, open-source software for monitoring, visualization, and metric analytics, had the largest round at $240M. Snyk, which provides cloud-native application security, had the second largest round at $196.5M in December. Harness, which offers a continuous delivery as a services platform for engineers and DevOps teams to release applications into production, had the 3rd largest round at $175M. Teleport, which provides an access plane that consolidates connectivity, authentication, authorization and audit of apps and containers into a single platform, received $110M in its third round to total $165M. The come-back company, Docker, received a tremendous boost earlier this year with a $105M 3rd round of funding. This brings the total to $163M of funding for Docker since the restructuring in 2019. It is worth noting that cloud native object storage specialist Minio, secured an impressive $103M 2nd round of funding at a $1B valuation. In the challenging space of cloud native storage, Minio appears to be leading the start-up pack while a host of other players such as Maya Data and Robin.io exited through M&A.