Stock Market Predictions

Big-data investors look for the next Splunk

Stock Market Predictions

Essentially a catch-all term, big data refers to the ability to collect and analyze massive amounts of information on almost every dimension of the human experience.

Splunk allows companies to analyze data cheaply and simply, compared to the expensive data warehouses and specialized, hard-to-deploy technology they might have needed in the past.

From general business aspects to narrow sectors ranging from retail to healthcare to climate, the possibility of capitalizing off this data has the investment community excited.

Investors "know a heck of a lot more about big data now than they did two weeks ago, and they'll know a heck of a lot more in a month than they do now," said John Connors, a former Microsoft investor who now works as a venture capitalist at Ignition Partners, where he headed up the firm's Splunk investment.

Some backers of big-data companies didn't realize they had such a hot ticket until well after they made their initial investment.

Dave Hornik, an early backer of Splunk and who also backs traffic-information company Inrix, said he did not think of Inrix as a big data investment at first.

"But it turns out it is absolutely about big data," he said.

Most of the pure-play big data companies are still a couple of years away from IPOs, said Asheem Chandna at Greylock Partners, which invests in big data companies Cloudera and Sumo Logic. But he predicts stepped-up mergers and acquisitions of smaller big data companies in the short term, as well as blockbuster IPOs in the future.

"We're at the start of a decade-long run around new opportunities in big data," he said, singling out sub-areas such as analytics, business intelligence and automated pattern detection.

Greylock Partners fields around two dozen pitches a month from big data start-ups, more than double the rate of a year ago, Chandna noted.

"Splunk's IPO is going to have a huge impact," said Ted Tobiason, who runs technology equity capital markets at Deutsche Bank. "You can't ignore the valuation."

Splunk shares opened at $32, up 256 percent from the mid-point of the company's original IPO filing, valuing the business at about eight times forecast 2013 revenue. That is a lot higher than Jive Software, a recent hot software IPO that priced its offering at 4.7 times 2013 revenue, Tobiason noted.

While there are few pure-play big data companies nearing IPOs soon, Splunk's stock-market splash may encourage venture capital firms to invest more when big data firms look for new rounds of financing, Tobiason said.

VC firm Accel Partners launched a big data fund headed by Ping Li recently, but investors in other VC firms are likely asking how they plan to get more involved in the sector, he added.

It may also help big data start-ups to persuade more talented software engineers to jump ship from established tech companies, Tobiason said.

"This is the expansion of a huge market and you're going to have a lot more winners like Splunk," said Rob Ward of venture capital firm Meritech Capital, which invests in Cloudera and another big data company called Tableau Software.

Tableau is growing quickly and is likely considering an IPO some time next year, Ward added.

Curt Monash, an independent tech industry analyst, said he is busy meeting several big data companies, including Cloudera, Couchbase and Hortonworks.

"Cloudera probably has the second-best traction after Splunk," Monash said. "They have doubled in every metric you can measure them by. They have about 220 employees and a number of subscription customers. Subscription is the majority of their revenue now, which they are happy about."

Couchbase is part of a group of companies including 10gen that offer a hot type of database technology that can handle massive amounts of variable data, he added.

Other companies doing well in the big data space include MetaMarkets and Infobright, according to Monash.

Here are a handful of promising big-data businesses highlighted by venture capitalists, bankers and tech industry experts:

Cloudera: Helps other companies, including Nokia, Qualcomm and Groupon, store and crunch big data using Hadoop, a popular type of open-source software.

Cloudera is run by Michael Olson, former CEO of database company Sleepycat Software, which was acquired by Oracle in 2006. Cloudera's Chief Scientist is Jeff Hammerbacher, who built Facebook's data team.

While most people complain about the avalanche of data spewing from social networks and other sources, Hammerbacher thinks there is not enough data in the world.

Cloudera raised $40 million in Series D funding in late 2011 led by Frank Artale of Ignition Partners and existing investors Accel, Greylock, Meritech Capital Partners and In-Q-Tel, known as the investment arm of the CIA.

Hortonworks: Formed from the team that helped develop Hadoop as an open-source project inside Yahoo several years ago. The company is trying to get Hadoop used by as many people as possible, and it boldly predicts the technology will process half of the world's data within the next five years.

Hortonworks has support, training and partner programs to help other companies learn how to use Hadoop. CEO Rob Bearden was COO SpringSource and JBoss, two successful open source companies. The CTO and co-founder is Eric Baldeschwieler, who led the evolution of Hadoop at Yahoo.

Hortonworks has been coy about its funding. However, Benchmark Capital general partner Peter Fenton is an investor and sits on the company's board of directors.

Sumo Logic: Think of this company as a next-generation Splunk, building in cloud-based capabilities right from the start. Currently, Splunk is premise-based, meaning it uses on-site computer servers rather than remote, cloud-based servers.

The company raised $15 million earlier this year from investors including Greylock and Sutter Hill Ventures. Chandna at Greylock Partners says on top of its existing business, Sumo Logic's cloud-based technologies mean it could one day sell anonymized industry insights gleaned from across the spectrum of companies it does business with.

Inrix: This company represents one of many industry-specific big data plays venture capitalists are making. It uses several hundred thousand receivers based around the roads to gather millions of pieces of data every hour on factors such as how fast cars are moving, whether they are slowing down or speeding up, whether windshields are on, and so on.

Together, the data gives a complete picture of traffic patterns now, and likely ones in the future. The data can be sold to entities ranging from GPS makers to municipalities who need to plan roads. Its latest funding round was last year, when it raised $37 million led by Kleiner Perkins Caufield & Byers and August Capital.

10gen: The company develops MongoDB, an open-source database that can handle lots of different types of data, partly because it does not require information to be store in traditional tables and rows.

10gen was founded by former DoubleClick Founder and CTO Dwight Merriman and former DoubleClick engineer and ShopWiki Founder and CTO Eliot Horowitz.

10gen raised $20 million in Series D funding last year from Sequoia Capital, Flybridge Capital and Union Square Ventures.

MetaMarkets: This company helps online media businesses analyze high volumes of streaming data in areas such as online advertising, gaming and social media.

MetaMarkets is run by Michael Driscoll, who led Dataspora, which delivers data science to telecom companies, insurers and retail banks.

MetaMarkets raised $6 million last year from investors including IA Ventures, Village Ventures and True Ventures.

(Reporting By Sarah McBride and Alistair Barr; Editing by Bernard Orr)