What Veeam's $5B Deal Says About the Market

The market for software-defined secondary storage, which extends hyperconverged computing to non-production data for backup, DevOps, testing, and the like, erupted in a mini-volcano last week when Insight Partners announced plans to pay $5 billion for late-stage startup Veeam.

The deal, expected to close in March, is geared to helping Veeam, which was one of the first companies to adopt a virtualized approach to stored data, establish a firmer foothold in the U.S. market. In support of that, the company plans to move its headquarters from Baar, Switzerland, to a yet-to-be-determined U.S. location; expand its current U.S. employee roster up from its present 1,200; and make its board and management team entirely U.S.-based.

An All-American Team

As part of this strategy, Veeam cofounders Andrei Baronov, CEO, and Ratmir Timashev, EVP of worldwide sales and marketing, are not only stepping down but out. Former EVP of operations William H. Largent has already taken the helm as CEO, and former VP of product strategy Danny Allan is now CTO.

The new Veeam board will also sport the stars and stripes: Joining Mr. Largent and Michael Triplett, a managing director at Insight Partners, will be Nick Ayers, a 36-year-old wunderkind with numerous business and government credits, including having served as Vice President Mike Pence’s assistant. He is, according to Veeam’s website, a trusted confidante of both Mr. Pence and Donald Trump.

All of this could help Veeam as it aims to play in the U.S. market with its own potential acquisitions and possibly an IPO. The company learned a hard lesson a couple of years back when it purchased AWS backup software firm N2WS for a reported $42.5 million in cash. Veeam eventually divested N2WS last year after the U.S. government appeared to balk at the deal because of Veeam’s Russian management.

Veeam, which is thirteen years old, claims to have topped $1 billion in sales in 2019 from a whopping 365,000 customers worldwide, including 81% of the Fortune 500.

The Hybrid Race

A U.S. strategy could be great for Veeam, but another challenge looms: support for hybrid clouds, in which private and public cloud environments overlap. This trend has been gaining momentum for enterprise application workloads, and now it is reaching into secondary storage as well.

Veeam isn’t quite there yet, and the company says the Insight acquisition will boost its charge into full-fledged hybrid support. Meanwhile, some observers think Veeam will be challenged to keep pace in this arena. And competition is heating up; analysts predict the market to grow exponentially within the next three years.

Here’s a checklist on some of Veeam's competitors:

Cohesity. While smaller and younger than Veeam, Cohesity, founded in 2013 by hyperconvered infrastructure genius Mohit Aron, is growing quickly and boasts impressive backing. In 2018, the company announced over $410 million in funding, thanks to a $250 million Series D round headed by the SoftBank Vision fund with participation from Cisco Investments, Hewlett Packard Enterprise (HPE), Morgan Stanley Expansion Capital, Sequoia Capital, and others. Cohesity is headquartered in San Jose, California.

In October 2019, Cohesity unveiled support for two hybrid cloud products, Microsoft Azure Stack and Azure VMware Solution. The company also offers data management and analytics for its software-defined secondary storage wares.

Rubrik. A year ago, this five-year-old company, based in Palo Alto, California, announced a $261 million Series E investment from Bain Capital Ventures, Lightspeed Venture Partners, Greylock Partners, Khosla Ventures, and IVP. The round brought Rubrik’s total raised to over $553 million, and investors valued it at $3.3 billion.

Rubrik aims to provide unified management and control of secondary storage for a range of cloud and IT platforms and environments, including on-premises databases such as Oracle and SQL Server, as well as public clouds like AWS.

Veritas Technologies. While privately held (and owned by private equity company The Carlyle Group), Veritas Tech, based in Santa Clara, California, boasts that 97% of Fortune 500 companies use its data backup and management software and appliances. It claims its NetBackup suite (formerly owned by Symantec) is integrated with over 40 major cloud providers, hence conforming to a hybrid cloud mission.

Others. Commvault (NASDAQ: CVLT); Dell EMC, a subsidiary of Dell Technologies (NYSE: DELL); and IBM (NYSE: IBM) are also competing in software-defined secondary storage with an emphasis on hybrid clouds.

Bottom Line

Veeam is in a good position to take its fair share of the burgeoning market for secondary, cloud-based data management — estimated to be worth from $20 billion to over $40 billion (depending on what's included) and climbing. But the newly acquired and soon-to-be All-American Veeam (will that name change as well?) must focus on supporting hybrid clouds, and fast. Otherwise, it may cede some of its fair share to hungry rivals.