It’s our twin sons’ birthday this morning, and no one wants to read (or write) a very lengthy post, but before I head out to run some errands, I need to quickly unpack last night’s news that Twilio, a $45B public company (wow!!) is about to acquire 5-year old YC alum Segment for $3.2B in a mix of cash and Twilio stock. My quick takeaways on the transaction:
1/ A New Flavor Of M&A – With the stock market soaring for tech companies during the pandemic (more on that below), there has been concern that traditional buyers of startups and innovation feel priced out of potential acquisitions. These acquisitions, of course, are critical to making the startup creation and investing cycle work. Perhaps now, as newly minted public companies who are themselves technology-oriented (think: Twilio to Peloton, etc.) will have enough resources to start making these kind of offensive and strategic moves. Twilio is in such a great position, I would not imagine any early shareholders of Segment would mind to have some Twilio shares, too.
2/ Pandemic Currencies – As mentioned above, it easier for public companies to use to purchase companies using a mix of stock and cash when their stock is rising in public markets. Twilio embodies that trend, surging ~150% in enterprise value alone in 2020. Rising stock prices provide companies like Twilio with a powerful form of currency to add to their platform; as Q4 unfolds, I wonder if we will see other public tech companies who have gone to the moon in 2020 — like Zoom or Peloton — leverage this newly found currency to make some strategic purchases.
3/ Reinventing Customer Data Platforms (CDPs) – Insiders have long-recognized Segment to be a high-quality company, though many didn’t full understand how large it could eventually get. Segment’s belief was that a traditional CRM wasn’t robust enough for the enterprise to properly manage its pipe. Segment entered to provide customer data infrastructure to offer a more unified experience. Now under the Twilio umbrella, Segment can continue to build key integrations (like they have for Twilio data), which is being used globally inside Fortune 500 companies already.
4/ Minting New VC Generation – Segment board leadership was anchored by two names that most observers won’t recognize, but that many insiders certainly do. This marks a huge win for Vas Natarajan from Accel and Miles Grimshaw from Thrive (and Will Gaybrick), who invested in Segment at the Series A and B, respectively. These two VCs, relatively young compared to leaders at most firms, are widely considered to be in the very top ranking of GPs who are either 30 years old (or even younger) who are sitting on large potential returns. Miles sits on the board of Monzo, Benchling, Lattice, and has been involved in many other soon-to-be incredible exits such as Mapbox; Vas is involved with companies like InVision, Frame.io and many more coming down the road.
5/ The Calm Before The API Storm – By now, folks understand that API-driven businesses are not just viable, but tremendously efficient and value-accruing. There are by my count about 10-20 amazing API startups that don’t get a lot of press or Twitter love, and they will emerge this decade like Twilio did in the previous decade. Twilio and Segment helped pave the way, and it will all come to a head when Stripe goes public. Reporting at a revenue run rate over $1B and growing fast, Stripe’s IPO will be an event to watch, indeed.