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Even before the COVID-19 pandemic and resulting global recession, 2020 was shaping up as a notable year for data protection vendor Veeam Software.
Private equity firm Insight Partners bought Veeam in a multibillion-dollar deal in early January, accelerating the backup vendor's transition into Act II of its 14-year life. From the technology side, Act II is completion of a move from virtual backup to data management across hybrid clouds. But the Insight deal put Veeam into Act II from a business standpoint. Russian founders Ratmir Timashev and Andrei Baronov -- both CEOs at times during Veeam's history -- stepped away from day-to-day management. Veeam began looking to move its headquarters from Switzerland to the United States, and sought to expand its U.S. customer base.
With the acquisition, William Largent began his second stint as Veeam CEO. Largent has been with Veeam since 2008, and worked with Timashev and Baronov at a previous job. Now he oversees the transition of the founders from day-to-day leaders to consultants at Veeam, which passed $1 billion in revenue in 2019 and claims 375,000 customers.
We spoke with Largent last week during the virtual VeeamON 2020 user conference about his plans to grow Veeam further. Largent said Veeam's sales haven't dropped noticeably during the pandemic, and he looks forward to VeeamON 2021 becoming a physical conference again.
Largent also spoke of the surprising new contender he sees in the crowded backup market, who else Veeam shopped itself to before selling to Insight, and why an initial public offering (IPO) is likely.
When Insight made the acquisition, its executives talked about expanding in the U.S., both employee-wise and adding more U.S. customers. How much has COVID-19 put you behind schedule?
William Largent: I would say we are a little behind schedule on our pushing into the federal government market. Our federal government business is not where it needs to be. We changed ownership, we no longer have Russian owners. I've worked with Ratmir and Andrei for a very long time and have a lot of good friends in Russia, but not having Russians as shareholders is helping us make trips to Fort Belvoir and get meetings.
OK, so we're no longer Russian owned, got it. We solved some other things. We're moving our headquarters to the U.S. and we're part of a U.S. holding company, which wasn't the case before. So those things have all been pretty important to us. What slowed us down on the federal government side is the Beltway; there's other problems the federal government is dealing with. We have a roadshow planned for the federal government, Department of Defense, all the critical entities. That's on hold, it's been delayed a little bit.
The rest of our activity has not been held up. Our hiring has slowed down, but we continue to hire. We've always done virtual interviews, but we like face-to-face interviews, and we've had to adjust to not doing that.
We'll see a bigger expansion in customer support. That's underway, but that slowed down a little bit, and we're probably a couple months behind on some of those activities.
The Veeam founders are not in their executive positions anymore, but they're still working inside the company. What are their roles now?
Largent: We have them signed up as consultants for the first 12 to 18 months. Ratmir is on the strategy side. Looking at marketing strategy has always been his first love. And he's working on product strategy -- where to go next. He's working with Insight on what we should look to buy versus build. So it's product strategy for him, with a market focus versus a detailed technical focus. We're relieving him of the day-to-day sales activities that he and I worked on together.
With Andrei, it's a different transitionary path. He's been predominantly an ultimate technician, solutions architect -- pick the word, he's all those things. And he's looked to as the leader. Now, he's moving out of day-to-day operations and more into an oversight role. He's making that transition nicely. I think you'll see some other key players step up, like [product management senior vice president] Anton Gostev, [CTO] Danny Allan and other key guys who will play a more prominent role in the next 12 months. But I would say Andrei will be in an oversight role longer than Ratmir will.
What areas are ripe for acquisitions for Veeam?
Largent: It's in that cloud data management space. We'll be looking at areas that we know and are adjacent to us, but we don't have R&D expertise in. On the technology side, Kubernetes is a great one to talk about. Cloud will be a big piece. There are things around the cloud and other storage areas like containers that we need to have some expertise in. But nothing's on the burner. Not that they couldn't pop up, but I would say there's nothing in the next six months that we've got on the books. We're looking at a number of different things.
What is your strategy for containers and Kubernetes? VMware is going heavily in that area now. Veeam sprung up protecting VMware virtual machines. How much will you have to change your underlying infrastructure for containers?
Largent: We clearly have it on our boards and we have a relationship with Kasten [a Kubernetes backup startup funded by Insight Partners], which is on the Kubernetes side. There's a bunch of really smart engineers involved in running that company.
I do think we have to be there. We're not a believer that we have to be there tomorrow or six months from now, but we think that we will be there one year or two years from now. That's why the relationship with Kasten is an important one.
What is your competitive landscape now? Are you seeing any new rivals in more deals than you're used to?
Largent: Druva's been pretty aggressive. We're seeing a lot more of Druva. Otherwise, it's the same crew: It's Veritas, it's Commvault, it's Rubrik, it's Cohesity. But we're battling on those. We've seen Druva make a pretty good approach on some areas we'd like to take back. So, I think you'll see a pretty aggressive activity from how we do that.
The data protection market remains crowded, with the vendors you mentioned, as well as others. Do you expect to see consolidation through acquisitions?
Largent: One would have thought Veritas would have started to try to do something. We talked to Veritas probably three-and-a-half years ago, and it was like, 'Hmm, that's not going to happen.' We talked to Commvault two-and-half or three years ago and it was like, 'It's not going to happen.' I don't know why they haven't done anything yet. So, we don't see that consolidation going on from those individuals. Now will we see Cohesity or Rubrik go inside somebody else that's not already a competitor? That's a possibility. But we don't see that landscape changing much, other than a lot of competition in the lower end now.
The market is volatile right now with the pandemic and recession, but is an IPO still a possibility?
William LargentCEO, Veeam
Largent: If somebody asked me -- and they have -- I'd say it's a 50% to 60% probability that that's the way to go versus somebody buying us in a strategic acquisition -- that's about a 40% to 50% kind of thing. That group [of strategic buyers] has gotten smaller because our price tag is bigger and due to our size. It's gone from a couple handfuls down to one handful. So my view is, we can be ready to go with an offering and run it off our 2021 numbers. That would be a 2022 IPO play. That's Insight's call, they own the shares. I own a little bit, they have a whole lot. So, if it makes sense, that would be a great way to have currency to do other acquisitions.
Between the new owners and the pandemic, Veeam has gone through a lot of change in 2020. How has that affected the company?
Largent: We've gone through two major changes. One, we went from a founder-led company to a PE [private equity] firm. At a founder-led company, we all knew each other. I've worked with the guys [Timashev and Baronov] since 2001, and I'm still working with them, but we're transitioning them.
Then, the pandemic. We have about 4,300 people and about 1,300 of them worked from home already anyway. The other 3,000 people were in offices around the globe. So we had to pick them up and move into that home office. It's a different work environment. That was a huge, huge change for a number of people. They had to get used to really using Teams as rapidly as possible to make sure that everybody would be accessible. Then it gets a little hard, because you're sitting there working out of your house, and there's the refrigerator, there's the door or there's the dog or the kid, or whatever. Our next big issue is, how do we plan back for going into the office?
Salespeople are used to travel and face-to-face interaction. How have they reacted to working at home?
Largent: I think it's been more challenging for field sales team than the inside sales team. We saw flat sales in Q1, but that was our plan. For Q2, April started out great. May was OK. And here we're in the last two weeks of the quarter, so we'll have a better idea in about two weeks as to how we're doing. But we expect to be up 5% or so, quarter over quarter. So, the outside sales team and the SEs [sales engineers] that go along with them, they're not getting to do their proof of concepts, they're not getting to do their trials because they can't go on site. That's hurt our enterprise business, and it has slowed down quite a bit for that reason.
We're seeing companies may do one-year subscription deals so that they can save cash. We're seeing some projects put on hold, but others continue to move forward with less sockets or less installs as they slow down their deployments or refreshes. For the salespeople who love to get out and travel, I joke with them, like 'You're not doing too bad, and you're not spending a nickel. So, what do you do with all this travel?'
But that's the way we started back in 2006, we were all at home, we didn't even have big offices.
How did going virtual change your approach to VeeamON 2020?
Largent: We use physical events like VeeamON as a lead-generation mechanism. So, we're getting good activity, but we're not getting the level of leads that we want. But there seems to be a lot of interaction during VeeamON this year. I think it's the next best thing to being live, but we're planning on a live one next year. We're planning on going physical next year.
During VeeamON 2020, you talked of the company being in Act II, centered on cloud data management. What are your big challenges in Act II?
Largent: A big key for us moving from Act I into Act II has been our licensing model. We started with VMware, and then added [Microsoft] Hyper-V. And it was socket licensing. Now it's VUL licensing -- Veeam Universal Licensing. It's the portability that we've introduced that we think is critical. It's probably cost us a few dollars in the way we've made the change; it clearly cost us some efficiency issues internally that hopefully wasn't seen too much on the outside. But we've learned a lot about how to make those conversions. It's the portability aspect -- pick your license up and take it to a variety of places, that can be hybrid cloud or an on-prem subscription.