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Breaking Analysis: Veeam’s $5B Exit: Clarity & Questions Around “Act II”

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>> From the SiliconANGLE Media office in Boston, Massachusetts, it's theCUBE Now, here's your host, Dave Vellante

>> Hello everyone, and welcome to this week's episode of theCUBE insights, powered by ETR In this breaking analysis, I'm going to provide a little detail on the recent announcement that Insight Partners was acquiring Veeam for five billion dollars There was a lot of information on the announcement in press releases and in news articles, so what I really want to focus on is what it means for the industry generally, and for the data protection community specifically So, very briefly this was a five billion dollar exit for Veeam on top of a five hundred million dollar investment lead by the same Insight Partners last year I think it had earlier investments, kind of a rent, with an option to buy

New management is being promoted from within, which I think is significant, to replace the two founders Andrei Baronov and Ratmir Timashev are going to step down after the transition and give up their board seats Veeam is a fascinating company It started in the 2006, 2007 time frame, after the two founders, who met in college, formed and sold Aleta software to Quest Then they started a company called AMUST Software, from which they created Veeam

You never hear about AMUST, but I believe it's the engineering and development arm of Veeam Now the new CEO of Veeam, Bill Largent told theCUBE that AMUST is now a wholly owned subsidiary of Veeam and it won't effect any of the engineering assets that exist in Prague and in Russia So this I the thing about Veeam, it's a very closely held company controlled by it's two founders, with a domicile in Switzerland My understanding is Baronov is, well he's the technical guru, and he's a resident of that country in Switzerland, and the HQ there is very lean, the sizable engineering teams, as they say, is in Russia and Prague Timashev resides in the US, and he's a marketing genius, who helped create this company, and it's always punched above it's weight class with, epic parties, and great products

Now interestingly, Veeam's rise, it coincided with the ascendancy of VMware Veeam became the standard backup software for small to medium size companies within VMware shops Their products are renowned for being simple, and working as advertised, and their customer support is outstanding by all accounts But the US business lagged, despite the fact that most of VMware's business is in the Americas You'd think you think if they super glued themself to VMware their Americas business would be higher

So a few years ago they decided to really go hard after the enterprise and they brought in Peter Mckay, from VMware, and he began to build up a US presence But the enterprise business, it requires a lot of things that were kind of antithetical to Veeam So think about long sales cycles, expensive sales people, belly to belly selling, with the expectations of, road maps, and clarity around enterprise feature sets Now McKay was named CEO with Baronov, who continued to run engineering So it was a bit of a culture clash

You got the sales oriented leader wanting the engineering team to turn on a dime and help close large deals, and satiate partners like HPE and Sysco, and you've got this genius co-leader, slash engineer, with an incredible track record of delivering features that the customer loves So it really didn't work out and then Veeam scaled back on it's ambitions some what At it's annual user conference in Miami last year, Ratmir came on theCUBE, and he talked about how Veeam's act one was all about dominance in virtualized environment Let's listen to what he said about act two and then we'll come back and talk about it >> That was act one, we dominated it, we grew from zero to one billion within 10, 12 years We added three hundred fifty thousand customers over that time frame, and now it's act two

What is act two? Act two is the, again, the new major industry transformation to a hybrid cloud What are the similarities? Again, Veeam is in a great position because we're at the right time at the right place with a brilliant product >> Now what we know is that act two is about a few things, one, as Ratmir said, hybrid cloud, multi cloud management, etcetera But it's also about an awesome exit for it's two founders Wow five billion dollars, five x revenue multiple, handing over the reigns is really the third thing this is about and creating more traditional governance structure for Veeam

Now they're moving from a governance structure that was closely held and opaque to one that is still going to be closely held, but ideally somewhat less opaque Which brings me to inside partners In the money world, you basically have a spectrum of investors On the one side you've got banks, who are the most conservative On the other side you've got VCs, now they're the most aggressive, of course

Now somewhere in the middle, you have private equity firms Now they traditionally invest in companies, and they squeeze them for EBITDA, and they suck money out But inside is more of a hybrid They invest in a number of companies as VCs, they take a portion of the ownership And to me they're more of a rule of forty PE, meaning it's not just about EBITDA, it's about growth plus EBITDA

So a rule of thirty or a rule of forty PE company, they can dial down EBITDA and go for growth, or dial up EBIT and moderate growth So it's a great model So I would expect Insight to bring structure and leadership to Veeam, with the goal of taking the company public at some point, because they like to sell to companies for all cash, I don't see a logical buyer at these kind of price points for this company in this market It's growing market but it's still not a giant market All right let's shift gears a little bit and get into some of the ETR data

Here's a narrative they put out recently that, to me, sums it up well ETR said Veeam is one of the few vendors growing share among customers vs previous surveys in the storage sector And that said, spending intentions are decelerating and continue to look poor in the largest sectors and Veeam trails Rubrik and Cohesity, although on a larger user base So you can see by this statement that Veeam is of course doing well, but there are some cracks in the enterprise armor that I want to talk about and drill into a little bit Now this now this Arline customer quote also, to me, sums up one of the reasons for Veeam's success

What this person said is if I want to do a Veeam back up to the cloud, it's basically point and click, very easy to use Now I've talked to dozens, if not hundreds of Veeam customers, and they all say the same thing, it just works, that's kind of their motto So this is the big reason why Veeam has steadily gained gained share over time Now take a look at this chart, which shows the progression over time of Veeam's progress in terms of what ETR calls market share Now remember, market share is a measure of pervasiveness in the ETR data set

And you can see, in the data, that Veeam has had a steady rise since ETR started tracking them at critical mass back in 2014 And you can see the steady decline in the survey for Veritas and Commvault and what appears to be, rapid momentum building for Rubrik and Cohesity, two companies that I said in my 2020 predictions breaking analysis that would continue to do well this year Now notice I had to black out the January 2020 survey, which is ending shortly, so stay tuned for those results But let's drill into Veeam's performance a little bit more What this chart shows is a candlestick of net score and market share across all the respondents in the ETR survey for Veeam

Remember net score is a measure of spending momentum that subtracts customers that are spending less, the red, from those spending more, the greens And it's represented over time by this blue line that you see You can see that this blue line, it bounces around but it holds steady in the past couple of years pretty generally, and really in that thirty to forty percent range which you see on the left hand axis Now that yellow line, is market share or pervasiveness, it also continues to climb steadily as I showed you in the previous chart Now again this is amongst all respondents

Let's now take a look at this chart which isolates Veeam's performance in the largest companies, that enterprise push Notice the pictures is somewhat choppier Market share is okay, although unlike the previous chart, it's not steady This is stunning Peter McKay left in October 2018, and that's when Veeam really pulled back on it's big enterprise push, and you can see, there's a noticeable and steady drop there based on ETR data

So what's happening here is we are entering a new chapter for Veeam, act two so to speak With new leadership and new governance Danny Allen is taking over CTO, he previously ran strategy, Bill Largent is going to be CEO, the HQ is moving into the US So in my opinon, Veeam's issues in the US have been more execution related than anything else Veeam is a leader

So partnerships with Nutanix, Sysco, HPE, NetApp, should continue to improve and be somewhat productive, actually largely productive Let's talk a little bit about Veeam's architecture, and a point of discussion that you often hear in the community Veeam's a Window's based architecture Now is that a blessing or is that a curse? Well the pros are that the Veeam team came out of a Windows world, and they know the platform very well They are amazingly good at adding function, without screwing up performance somewhere else

You saw this a couple years back when they were making a big push on the enterprise and they increased the file sizes, and the number of objects that they could support Another example is when Veeam added cloud back up, it was a really good product, version one Unlink many products, when they first tried to port to the cloud, that wasn't the case Recovery from the cloud is very tricky Things are out of sync, you got a metadata challenge, and generally Veeam was able to achieve consistent levels of performance with it's cloud product

Now flip side of this, is that if you look at most, if not all, modern architectures today, are based on Linux And once you start getting into mulit cloud, and cross cloud management, you're going to bump into and be interfacing with lots of Linux based systems So Veeam is going to have migrate code, and maintaining consistent performance is going to be tougher But as David Fourier, my colleague points out, there are many many ways to skin a cat, and Veeam's engineering team has really, based on it's track record, has proven that it can solve tough problems, and really deliver a great product consistently I think the bigger issue and challenge for Veeam again, is execution in the US, and of course the enterprise

Customers in EBC's executive briefing centers, they want to see road maps, and enterprise features, and specials And so we'll see, if that's something that Veeam has an appetite for If they do, and I'm one of the incumbents, I'd be worried that VMware could do a land and expand Where VMware isn't as strong in large enterprises, big companies they buy from Veeam Maybe it's a smaller division, or remote location, but it's not like they don't do business in large accounts, they do

So in a way, they've already landed and they have an opportunity to expand, so that's something to pay attention to If I'm an enterprise customer, I would be pressing Veeam on it's roadmap, and having them clarify their vision around hybrid and multi cloud management Will Veeam be more transparent and willing to do specials for the enterprise, and their big partners, who expect them, when they say jump, they expect Veeam to say how high How will Veeam's culture change, is the other thing I want to focus on As the two founders step down, are they going to be able to main their engineering ethos, and customer loyalty, and can they figure out the enterprise

I'm a big fan of founder lead companies, when founders leave cultures often change When founders stay, they're intensely committed, even beyond great CEOs who aren't founders Look at Michael Dell He went to the mat to keep his company against the great icon, now look at Dell technologies, after the EMC acquisition, it was completely transformed Look at Oracle, look at the lengths that Larry Ellison goes to win

Compare that to a great CEO Joe Tucci, when he was at EMC, but you know when he was done, he was done, it was over It wasn't his baby So my point is how will this effect Veeam's culture and prospects in the long term For me the bottom line is the big opportunity's in the US And that's about execution

And I expect with the move to US HQ, new management, I expect they're going to see consistent market share gains, that's going to continue The enterprise however, that's going to take longer, it's going to require more patience and more money And with Veeam transitioning from essentially the two founder's lifestyle business into a company that's really built for an exit, they're going to have more money to invest, greater transparency, I hope, and a path to really build on their past successes So this Dave Vellante signing out from the latest episode of theCUBE insights, powered by ETR Thanks for watching everybody and we'll see you next time

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