Confluent

Private Equity Manager (GP)

Case study

About the company

Confluent is a US-based technology company that offers a data platform to help enterprises harness business value from tracking and streaming data points such as sales, trades, orders and customer feedback.

Business description

• The company’s solutions transform its customers’ data into data products, spanning various end-user domains, including financial services, manufacturing, Internet of Things (IoT), retail and ecommerce.
• Confluent’s cloud-native platform acts as a central nervous system for companies, allowing them to connect all their applications around real-time data streams, providing data integration, data processing and analytics.
• Confluent’s offering is based on Apache Kafka, an open-source data streaming platform that is reliable, durable and scalable. Thousands of organisations (including more than 75% of the Fortune 500) use Kafka.

Investment rationale

• Strong upside potential, with businesses becoming ever more reliant on using data to drive decision-making. Confluent provides a unique solution by offering the infrastructure that connects data across organisations.
• Index Ventures (“Index”) has a very strong track record of providing venture capital backing to innovative entrepreneurs in the IT space. Index led the Series B round of funding in Confluent, in April 2015.
• The founders of the business were originally with LinkedIn, where they had been working on Apache Kafka, an open-source data streaming platform, and therefore were well placed to commercialise the technology with backing from Index Ventures.

Private equity manager profile

• Index Ventures is a leading European venture capital firm with offices in London, San Francisco, New York, Jersey and Geneva. It invests in technology-enabled companies with a focus on artificial intelligence, ecommerce, fintech, mobility and security. Since its founding in 1996, the firm has raised and invested more than $15 billion.
• Index Ventures has a strong investment track record, with notable successful investments including Adyen, Deliveroo, Dropbox, Farfetch, King and Slack.

Our relationship

• Pantheon has a 20-year relationship with Index Ventures. It has several primary and secondary investments in Index Ventures’ funds and has also co-invested alongside Index in certain growth opportunities.
• Pantheon is a member of multiple Index Ventures and Index Growth Advisory Committees.

Active management and value creation

• During Index’s period of active ownership, Confluent has emerged as a key player in the big-data software industry, with the demands imposed by artificial intelligence (AI) workloads fuelling growth further.
• The company’s data infrastructure software platform has gained significant traction among enterprises, with a client portfolio now that numbers over 2,500 customers.
• As an active investor, Index made over 50 C-suite level introductions, significantly contributing to early-stage enterprise customer deals.
• In addition, Index participated in executive level hiring at Confluent, from introducing suitable candidates to helping Confluent complete executive hires, to working closely with the CEO and President on several executive transitions.
• Index headed the company’s M&A sub-committee, with active involvement in several M&A transactions, and actively participated in the company’s strategic development, especially in the creation of Confluent’s key product, ConfluentCloud.
• With Index’s backing, Confluent was successful in initiating partnerships with giant tech incumbents to broaden its reach. In April 2019, it partnered with Google Cloud and integrated Confluent’s managed service with Google Cloud Platform. Additionally, in November 2020, the company announced plans for a partnership with IBM, when the computer manufacturer agreed to resell Confluent Platform to its own users.
• Confluent’s last private valuation in 2019 was US$2.5 billion, and by June 2021, when it completed an IPO on the Nasdaq, it was valued at US$ 9.0 billion.

Exit

• Index co-led the discussions for the Series C and D investments with external investors, and actively participated in the IPO process, including investment banker selection and pricing.
• After publicly listing Confluent on the Nasdaq in 2021, Index Ventures has been steadily selling down stock. It recently exited a significant portion of its holdings. So far, PIP has made a blended net return of c.8.2x cost and a blended net IRR of c.45% on its investment (in USD terms), with more than 7x the original cost of the investment having been distributed to date.