Four VCs recorded $ 1 billion in IPO profits on Thursday

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Jeff Tangney, CEO of Doximity for the New York Stock Exchange IPO, June 24, 2021.

Source: NYSE

Each year, technology investment firm Index Ventures sends out a survey to some 400 companies in its portfolio to determine which technology is the hottest. About six years ago, an open source product called Apache Kafka emerged as the next big thing.

Mike Volpi, a partner at Index Ventures who made another big bet on open source software, backed Hortonworks in 2011 and Elastic in 2013, saying, “It was clear this was a problem.

To find out who is behind the technology, Volpi turned to LinkedIn. There he found out that the creator was actually from LinkedIn. There, Kafka was developed in-house before launching another company to commercialize the technology.

The company – Confluent – debuted on the stock market on Thursday after raising more than $ 800 million in an IPO. Confluent is currently valued at $ 11.4 billion and the index is one of the main beneficiaries.

With Confluent’s initial public offering on the Nasdaq and the opening of health technology company Doximity on the New York Stock Exchange, it was a big day for Silicon Valley companies. Between the two IPOs, four companies posted $ 1 billion in profits.

Index is the second largest confluence outside investor, holding more than $ 1.3 billion in stocks. The benchmark, which co-led Confluent’s first investment in 2014, manages nearly $ 1.6 billion in stocks.

Doximity, a professional network of physicians, hasn’t raised venture capital funds since 2014, so it’s mostly in the spotlight. Emergence Capital co-led the first round, continued to invest and accumulated a 15% stake at the time of the IPO. At Thursday’s closing price, it’s worth $ 1.3 billion. InterWest, which joined Emergence as the first lead, has a stake of more than $ 1.1 billion.

Longtime VC winner Sequoia is now just under $ 1 billion. This equates to an investment of $ 963 million in Confluent. Morgenthaler also approached and invested $ 905 million in Doximity.

Warm intro

The accomplishments of all major corporations typically include a combination of luck, timing, and Rolodex. Early investors are also ready to bet on companies that are not yet in operation.

The index provides an annual survey thanking Confluent for its $ 1 billion profit, as well as a friendly recommendation from LinkedIn CEO Jeff Weiner at the time.

Volpi said he contacted LinkedIn co-founders Reid Hoffman and Weiner to see if he could put him in touch with Confluent CEO and one of the three co-founders Jay Kreps. It was. At LinkedIn, Kreps was a technology leader in infrastructure and storage systems and co-creator of Kafka, which was hired company-wide.

“Jay was a very important person on LinkedIn,” Volpi said. “They all knew him personally. “

Companies increasingly rely on Kafka to integrate all the events that occur within their business, such as sales, new orders, and product updates, and they are able to understand large data streams. .

After being introduced by Weiner, Volpi met up with Kreps and encouraged him to consider investing in Index, given his company’s history of supporting open source businesses early on. According to Volpi, the company had around 15 employees and was not making any money at the time.

In July 2015, eight months after Benchmark led the $ 6.9 million Series A, Index led Confluent’s $ 24 million Series B funding. According to PitchBook, the post-money valuation was $ 149 million and the share price was 96 cents. The original benchmark price was 20 cents for a valuation of $ 24 million.

The shares closed at $ 45.02 on Thursday, up 25% from the IPO price.

In the decade since Kafka’s development, the technology has been used by about 70% of Fortune 500 companies, according to Confluent, which counts Expedia, Citigroup, Humana and Lowe as customers. While Amazon, Microsoft, and Google offer services to manage Kafka projects, Confluent is the only company that bundles everything into business services that run in all major physical and cloud data centers.

A day after entering the market, Confluent is about as valuable as Volpi’s latest open source IPO, Elastic. Launched in 2018, Elastic has a market cap of $ 13 billion.

Before Elastic, there was the Hortonworks IPO in 2014. It didn’t work out very well. Hortonworks was one of the many companies trying to bring Hadoop to market. His main rival, Cloudera, was bigger, but both were burning money and hanging out behind the cloud.

They eventually merged in 2019 and agreed to sell to a private equity fund earlier this month in deals worth $ 5.3 billion.

“Each time I understand the mechanics better,” Volpi said. “The Confluent Cloud was launched and completed very early in the business lifecycle.

Pre-win game

Emergence generates similar returns through its investment in Doximity. But the path to get there was very different.

Known for its early bets on cloud software companies dating back to Salesforce and recently expanded to Veeva, Zoom, and Bill.com, Emergence is primarily a subscription with early traction and satisfying paying customers. I am looking for a company.

Doximity did not have paying customers. At that time, it was a network of hundreds of doctors sharing their knowledge with each other. Jeff Tangney, who previously helped establish healthcare technology company Epocrates, was a co-founder and CEO.

Kevin Spain worked for Emergence for several years but was not yet a partner. He heard about Doximity from a friend who was a doctor and an executive at Veeva, which sells software to pharmaceutical companies. He set up a meeting with Tungney and was immediately intrigued by his mission to improve the technology doctors use for communication and collaboration.

Spain was hoping for a challenge before convincing its emerging partners to strike a deal.

“The business model was given a bit of emphasis and the fact that it was pre-profit was a bit far from us,” Spain said. “I thought it would be a bit of a tough fight. I was asking people much older than me to bet on it. It was certainly an act of faith.

Emergence co-led Doximity’s $ 10.8 million Series A in 2011 with InterWest with a post-money valuation of $ 36.9 million. I also participated in the following two tours. Emergence and InterWest started investing at 39 cents per share.

Shares more than doubled Thursday, closing at $ 53.

Doximity’s network is currently used by 1.8 million healthcare professionals in the United States, more than 80% of whom are physicians. The company makes money by allowing pharmaceutical companies to promote their drugs and treatments to their targeted user base and by providing a centralized place for recruiters to find employment opportunities. Doximity also recently launched a paid telemedicine product.

Revenue for the most recent fiscal year increased 77% to $ 206.9 million. And unlike most tech companies in the IPO stage, Doximity is profitable, with annual net profit of $ 50.2 million.

Spain said Doximity no longer has to spend money on marketing as doctors reach out to colleagues, share research and become the default place to find new treatments. Last year’s advertising budget was $ 2.6 million.

“So many social networks have to spend a lot of money to attract new users,” Spain said. “They didn’t have to do that.

to have: IPO market remains strong in H2 2021

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