Viewed through one lens, a funding announcement is no more than an opportunity for a  startup to toot their horn about investor enthusiasm and to promote their own gains in paper wealth. For many people who have never started a company, this is often the natural way that they view a capital raise.

Through another lens, there is an opportunity to not only see a funding event as an independent checkpoint of a startup’s business progress, but these events also give us an opportunity to stop and think about a startup’s business strategy and how its management team thinks about its longer-term prospects. Today, I’d like to take a moment to explain our business in greater detail in an effort to help customers and prospective employees appreciate our unique success factors and the special trajectory that our strategy has put us on.

On this topic, you will often hear VAST Data talk about breaking long-standing tradeoffs. Customers, prospects and our competitors mostly know this as our focus on the revolutionary gains we’ve made in building our Universal Storage offering. What is less appreciated is that we also spend a good deal of time thinking about breaking many of the business tradeoffs that have forced many of the largest IT companies to walk a profitability tightrope while they struggle to grow and remain relevant.

Today, VAST Data announced its Series D round of funding. This round, led by Tiger Global Management, raised $83M of capital for the company at a post-money valuation of $3.7B – establishing VAST as one of the world’s most valuable startups and propelling VAST into an elite category of technology companies that also includes breakout successes such as Databricks, Snowflake and UIPath (all of whom are also Tiger portfolio companies). Tiger led the round and was the only new investor we added. Of the existing VAST Data investors who chose to participate in this new round, the average contribution was 2x their pro-rata share… demonstrating continued enthusiasm and support for the longer-term VAST vision.

Before I jump into the strategy stuff, let me first get to a few of the obvious questions:

Q: Hey, I thought VAST ended 2020 in cashflow positive territory?…why are you raising money if you reportedly don’t need it?

A: It is true, we are no longer burning cash. Our business model has been built for both high growth and cash efficiency. We don’t have a need to spend this new money.

On the other hand, venture rounds also support other strategic purposes. In our case, we raised funds on quite good terms to establish a new independent benchmark that tracks our performance in the market. Today’s announcement is intended to raise visibility to our mission and to elevate our profile in the hearts and minds of the strategic customer prospects who are looking to make massive bets on our technology in the years to come. At $3.7B, we’re now worth more than many of the household name brand storage and cloud infrastructure products that VAST competes with – and this provides customers with a certain level of positive assurance that VAST is now playing at an equal (or even superior) level to the established legacy players.

Q: OK, so what do you plan on doing with the new funds?

A: Nothing. Just as we’ve done with our Series B and Series C funding, Series D will also just sit in the bank generating interest. Today we are sitting on ~$230M of unspent capital, with no plans to draw down on this cash while we continue hyper-growth.

Q: Why did VAST raise less in its Series D ($83M) vs Series C ($100M)

A: Excessively large funding rounds can often be a sign of excessive startup spending. While we didn’t need funds, our interest in resetting our performance benchmark took us down the path of talking with some very significant investors who only engage when they can write significant checks. Tiger plays big, and we wanted to give them a sufficiently big enough opportunity to participate in our growth without selling off or diluting too much of the company. ~$80M felt right.

OK – back to the strategy stuff.. What is driving this investor excitement in VAST?

A quick recap of our FY21 (ending Jan’21) performance, this set the table for investor interest:

  • VAST exited its second year of selling at nearly $100M of annualized SW run rate
  • VAST’s FY2021 software revenue was more than quadruple FY2020
  • VAST finished 2021 cash-flow positive
  • Multiple VAST customers have now spent over $10M with VAST

It’s easy to find companies who grow fast from burning tons of capital, it’s also easy to find companies who grow slow and conserve their cash – almost never can you find a company that grows fast without burning cash. What has excited the market about VAST is the balance we’ve been able to achieve. VAST DATA = growth + sustainability… or as one investor called it “best in class for every metric”. Now I’ll dig into both of these topics, and promise to pepper in some investor metrics for those of you who want to see the world through a VC’s eyes.

Growth: Net Retention + Big New Customer Acquisition

File and object data is growing at a rate faster than any other type of data across the enterprise… data growth is approximately 35% per year. The great thing for customers about scale-out storage is that you don’t have to buy up-front all that you’ll need for 5 years, as has been done with scale-up legacy storage technologies. With scale-out systems, customers add to infrastructure more incrementally over time, and this creates a continuous stream of revenue for products which simply work.

We recognized that in the earliest days that if we innovated like hell and over-spent on product development and QA, that our earliest customers would have the comfort and confidence to not just buy a little, but rather to scale-out their investments each year. This strategy has worked exceedingly well. Our formula for taking a differentiated and well-engineered product out to market looks to delivered out-sized customer investment is as follows:

Game Changing Flash Economics (“the storage architecture of the future” (IDC))
+ A concept that, for the first time, addresses all data center use cases
+ Annually Compounding Data Growth (35% Y/Y growth of file/object data)
+ A Proven and Simple Technology That Customers Love
= Best-in-Class Customer Expansion Rates
328% Net Revenue Retention[1]

When we added it all up, we realized that our NRR is best-in-class, here’s that in context:

VAST’s customers love Universal Storage. Their purchase histories are the chronicle of their confidence and enthusiasm in our innovative approach. Customers are making significant investments, even in these relatively early days. Here’s an example of a new customer we brought on only at the very end of 2019. In just 13 months time, this Fortune 500 manufacturing company had spent more than 10x their original investment.

There are many other similar stories from customers that we’ve brought on in our first two years of selling. Universal Storage is simple, it works and it removes all of the complexity deploying data-centric applications. Because we knew we had something special architecturally, and because we knew our target market was ripe for disruption, we kept our focus on product quality to make sure that it was easy for customers to invest and then grow their investments with us. Our focus on appliance selling and our religious adherence to only supporting industry-standard data access protocols (NFS, SMB, S3, K8S) is also instrumental to make Universal Storage both simple and easily adoptable. Finally, the broad application of Universal Storage also makes it easy to jump in… this is a product that customers use for everything from Backup to AI, from HPC to VMWare, and everything in between. The consolidation play makes storage easier for customers.

From a customer acquisition perspective – we’ve grown to support nearly 100 customers last year. Many of our newer customers spent over $5M on their first Universal Storage purchase. This is unprecedented for a startup in their second year of selling. As the word spreads, it’s becoming easier for us to earn a new customer’s appreciation and trust – and these new customers we’re bringing on become a continuation of our strategy to out-service and out-innovate and to encourage the expansion of their investment. The commitment to innovation also extends beyond technology. Our new Gemini business model – where VAST has redefined the appliance business model while also making material support investments in our customers – has taken the risk and hesitation out of a customer’s journey to Universal Storage.

Sustainability: Focus On What Matters, Spend Judiciously and Sell Big Stuff

Do you have a petabyte-class data problem?  If the answer is no, then you’ve probably not heard from our Sales and Marketing team… that’s by design. VAST systems like to be big, and we concentrate our investments on selling them only to customers who have big data problems. We accomplish our out-sized revenue objectives without burning massive amounts of G&A. This focus on big systems selling has allowed us to do more with less… and also provides us the opportunity to support the hell out of a smaller number of select customers who we choose to work with and care for only with Level 3 engineers.

To put our second year of selling in historical perspective, let’s compare revenue and end-of-year headcount against one of the more recent storage startups, Pure Storage[2]:

We delivered breakout results in 2020 with only 8 sales teams. From a strategy perspective, the key for us is to find that unique balance between high growth and cash efficiency, and here we find ourselves also delivering a level of performance that is best-in-class.  Investor wise, this metric is the Rule of 40 (RO40).  The Rule of 40 is a metric that investors use to measure the performance of software companies by measuring the trade-off between profitability and growth. RO40 states that a company’s revenue growth rate plus profitability margin should be equal to or greater than 40%. RO40 is where the fullness of our balanced strategy comes through.

For VAST, we use this metric as a constant measure of our long-term sustainability.  Sure, it’s easy to raise cash in the current environment… but as we’ve seen last year, the times can and do change and we never want to put the company in a position where it needs to correct itself because we’ve over-extended ourselves.  Of course we will grow this year to rise up to the tremendous demand and reception for Universal Storage, but our growth will be thoughtful.

If you’ve made it this far, hopefully this gives you some additional perspective on how fundraising is both a byproduct of and an element of a company’s strategy. We’re excited to welcome Tiger to the VAST Data family and we’re thankful for the support and enthusiasm of all of our investors, alliance partners, resellers and our customers. Credit also goes to the VAST Data team who every day is shattering perceptions of how a smart and agile team can out-compete in the market.

2021 is shaping up to be equally interesting… it will be fun to watch as we continue to reset the benchmark of how to build a balanced business in the future.

Until then…

Jeff

[1] What is net dollar retention (NDR)?  This is an increasingly popular investor metric that tracks the uptake of a product or service within an account. Finance people define NDR as [the beginning of period revenue + upgrades — downgrades — churn], all divided by beginning of period revenue. When NDR yields a number greater than 100%, then growth from your existing customer base offsets any churn.
[2] Source; Pure Storage S-1 Filing