Written by John Carbrey, in collaboration with Stephen Baldwin.
The venture studio model had one of its biggest successes last week with the IPO of Snowflake, a scalable data warehousing company that was worth $70.4 billion (USD) at the end of trading on Wednesday.
Here are the share prices that significant early investors in Snowflake got in at:
- Sutter Hill Ventures: $0.17 per share
- Redpoint: $0.97 per share
- Altimeter Capital: $2.30 per share
- Iconiq Capital: $3.50 per share
- Sequoia: $7.46 per share
Arguably the day’s surprise, both in terms of financial gain and recognition, was Sutter Hill Ventures, a nondescript Palo Alto venture capital firm that incubated the company from its infancy. Like a venture studio, SHV leveraged its capital, experience, resources, and networks to help Snowflake develop into a unicorn.
Here are some of the ways that SHV led Snowflake to the biggest software IPO ever.
1. Co-creation
Venture studios help to build breakthrough technology companies through co-creation.
After convincing co-founders Benoit Dageville and Thierry Cruanes, both ex-Oracle engineers in their mid-40’s, to start Snowflake, managing director Mike Speiser came on as the company’s founding CEO, with SHV leading Snowflake’s $5 million Series A funding round. He helped lead the company so the co-founders could work on the product. To underscore Speiser’s involvement in the venture, TechCrunch reported in August that he directly held just over 10% of Sutter Hill’s stake.
(He also came up with the company’s name, in honour of the team’s love of skiing.)
Speiser had previously been the founding CEO at Pure Storage, another enterprise data storage company that has also reached a multi-billion-dollar market cap. Both companies operated out of SHV’s offices in Palo Alto in stealth mode.
Speiser continues to sit on the board of both Snowflake and Pure Storage.
2. Giving Snowflake the spotlight
Despite being integral in the co-creation process, the best venture studios are rarely spoken of when the venture gains notoriety. The spotlight is focused on the co-founders.
This speaks to the venture studio’s mission to develop and grow leaders and their businesses. In an attention-driven culture, they remain invisible, funnelling all of the attention to the ventures they co-create.
Speiser and SHV keep a low profile, placing the companies they fund and help build front and centre.
“He is a very driven individual, but he gets his success vicariously through these companies he helps create,” Scott Dietzen, the former CEO of Pure Storage, told CNBC of Speiser. “He gives the entrepreneurs who are ultimately doing the work every day the credit for their success.”
Even when there’s attention on Speiser, his focus is elevating the company he co-created.
“Snowflake is a company with the potential to disrupt a huge market. They have quietly assembled a world-class team of top database talent and put that brain trust to work building a transformational data warehouse product,” reads a quote from Speiser on Snowflake’s website. “They have taken on one of the most complex areas of software and rapidly built a completely new product that is a huge innovation over current technology. It’s a winning offering for customers and investors, and definitely a company to watch.”
3. Capital
Along with playing a significant role in co-creation, venture studios often contribute funding to the founding and launch of a company. This can range from hundreds of thousands to millions of dollars.
As of Wednesday, Sutter Hill Ventures owned more than 20% of Snowflake’s outstanding shares, valued at around $12.6 billion USD. This came out of a reported total investment of $200 million, a significant chunk of SHV’s portfolio.
So Sutter Hill wasn’t just an active investor, it had a tremendous amount of skin in the game.
We can only speculate here, but they also likely attracted new investors, including Redpoint, which also invested in Pure Storage and controlled a 9% stake in Snowflake ($5.6 billion valuation) as of Wednesday.
4. Team building
In acting as co-founders, venture studios are actively involved in acquiring the best talent to make their ventures successful.
Speiser and SHV have been widely credited with helping to assemble the team that catapulted Snowflake to unicorn status. They brought on the right leaders for each stage of the company’s development.
It was Speiser who reportedly convinced Frank Slootman, an experienced tech executive whom he knew from the Pure Storage board, to put his retirement on hold (he had been pursuing his passion of racing sailboats) and become Snowflake’s CEO. Snowflake has grown tremendously under Slootman, who hired a sales team with experience landing large customers, and brought on several members of the company’s current executive team.
Early investor Ken Hausman told Axios that it was also Speiser’s idea to hire a head of product. “It’s not common to have, from my experience, that kind of attention and focus on the customer so early,” Hausman said.
In an interview with CNBC, Speiser credited Chad Peets, an SHV partner, with helping Snowflake’s chief revenue officer hire 500 people.
5. Industry knowledge
Studios leverage their industry and technological expertise in a way that complements the ventures’ other co-founders.
SHV came into their relationship with Snowflake’s co-founders with substantial knowledge and experience in the enterprise SaaS world, and specifically with domain expertise and past success in the enterprise data storage market.
This experience was useful both in growing the company to thousands of employees and raising hundreds of millions in venture capital funding.
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We’re excited to see which co-created venture will emerge next.
If you’re interested in co-creating a software company and have deep industry or technological expertise, we’d love to speak with you.