Confluent’s IPO introduces the public markets to a high-growth, high-burn SaaS business model

SaaS News -Confluent’s-IPO-brings-a-high-growth,-high-burn-SaaS-model (source: SaaS Industry)

At a Glance

Confluent was one of the most recent firms to file its S-1 papers with the Securities and Exchange Commission, announcing its desire to go public. When it secured $250 million in April, the business, which has raised more than $455 million since its founding in 2014, was valued at a little over $4.5 billion. Confluent is reaching the end of its journey as a startup and is gearing up to become a public company.

Confluent was one of the most recent companies to declare its intention to go public, filing its S-1 paperwork with the Securities and Exchange Commission. 

The firm, which has raised more than $455 million since its inception in 2014, was last valued at a little over $4.5 billion when it raised $250 million in April.

Confluent created a streaming data platform based on the Apache Kafka open-source project. Confluent provides a free layer of its commercial cloud service to complement its premium solutions and assist drive top-of-funnel inflows that it converts to sales, in addition to its open-source heritage.

At the time of the fundraising, Confluent CEO and co-founder Jay Kreps said in a blog statement that event streaming is at the center of every organization, addressing sales and other essential business operations that occur in real-time and go beyond storing data a database after the fact.

Databases have long helped to store the current state of the world, but we think this is only half of the story. What is missing is the continually flowing stream of events that represents everything happening in a company, and that can act as the lifeblood of its operation.

Jay Kreps, co-founder and CEO, Confluent

High-Burn Model

In 2019, Confluent’s sales increased to $149.8 million. Confluent increased by 130 percent in 2019. That was a significant growth rate for a firm that was already at the size.

In 2020, Confluent continued to develop, though at a slower rate. Confluent grew by 58 percent year over year, bringing in $236.6 million in sales. Despite a significant slowdown from the anticipated 2019 sales growth rate, the firm maintained good growth during the COVID-19 pandemic.

However, this expansion came at a high price. Net losses increased from $41.4 million in 2018 to $95 million in 2019 and $229.8 million in 2020. Outsized, one-time share-based compensation expenditures of $111.9 million harmed the 2020 outcome.

Confluent is a high-burn SaaS company that is almost old-school. It has amassed a large sum of money and invested it in an increasingly costly sales technique. Confluent’s sales and marketing expenditure increased from $54.5 million in 2018 to $115.8 million in 2019 and $166.4 million in 2020. However, the latter figure includes a higher share-based compensation charge.

Confluent is nearing the conclusion of its adventure as a startup and is preparing to exit as a public business. Although Wall Street may demand a more cautious approach to spending, as the firm grows, that should be the direction it takes.

Read more stories