November 15, 2021
Image: Christopher T. Fong/Protocol
By this point in late 2021, most large enterprise companies have realized they need at least a semblance of a cloud computing strategy. But getting up and running on any of the major cloud vendors is not easy, especially for companies that have been managing their own data centers for a long time.
That task is especially difficult if you want to keep your options open, whether that's using multiple cloud providers or managing apps across cloud providers and self-managed data centers. Each cloud provider has a slightly different method for accomplishing the same goals, and learning those skills takes time.
With open-source tools like Terraform, Vault, Nomad and others, HashiCorp became one of the most valuable cloud infrastructure startups in recent years because its tools help big businesses build, deploy and managTe applications across multiple operating environments. It sells enterprise-class versions of those projects and will also manage those services for clients, which include some of the biggest companies on the planet.
HashiCorp filed its S-1 statement on Nov. 4, 2021, with plans to trade on the NYSE under the symbol "HCP." On Nov 29 the company announced plans to offer 15.3 million shares of its common stock at between $68 and $72 per share, the midpoint of which (based on the total number of outstanding shares) would value the company at around $13 billion, more than double its current private valuation of $5.1 billion.
Like most enterprise tech companies at this stage, HashiCorp is not profitable, but it narrowed its loss during the first six months of 2021 compared to the same period last year. One of its biggest challenges will be holding onto customers as nearly everyone in enterprise infrastructure tech chases the same goal, which is why HashiCorp took great pains to emphasize its customer net-retention rate.
In an interview in 2019, HashiCorp co-founder Mitchell Hashimoto described the company's ambition to provide "the iPhone of infrastructure," a set of connected tools that work better together to deliver a unique experience.
While nobody buys enterprise infrastructure tools like they do iPhones, HashiCorp's strategy is to provide an opinionated take — internally referred to as "the Tao of HashiCorp" — on how modern enterprise applications should flow from ideas to production on cloud servers. It has developed eight core open-source projects that help companies manage application deployment, security, networking and infrastructure management across multicloud environments.
The company generates revenue by selling premium versions of some of those projects with features larger teams require, and last year it began offering these capabilities as a managed service, which generally is more expensive and profitable.
HashiCorp's revenue has grown steadily since it introduced commercial products for the enterprise in 2016 to $212 million in revenue during its 2021 fiscal year.
Profits, however, have yet to materialize.
Big Cloud has been delighted with HashiCorp over the last several years because the company helps enterprise companies move their operations to cloud servers. As it grows, however, those partnerships will become more complicated.
HashiCorp's strategy also relies heavily on the "open core" business model that many open-source enterprise companies have used over the past decade. That business model can start to get tricky if cloud providers decide they want to offer similar services, because there's nothing stopping them from taking the basic open-source code and adding their own higher-level features around it.
HashiCorp noted that it has "limited experience with respect to determining the optimal prices for our products." Did it undervalue its software?
And in a rare move, co-founder Hashimoto stepped down from his co-CTO leadership team position and seat on the board of directors just a few months before the company filed its S-1. The company said his decision to return to an individual contributor role was in the works for a long time, but founders (and major shareholders) carry a serious amount of soft moral power across their companies, which could complicate the decision-making process down the road.
HashiCorp has yet to release its target IPO price as well as the number of shares outstanding, so it's a little hard to know exactly how much the following organizations and individuals stand to gain. But here are the company's major holders, all of which hold more than 5% of the company:
"Practitioners, rather than executives, have become the decision makers for adopting modern enterprise products, making it imperative that we focus on these end users. At HashiCorp, we've always built tools we want to use ourselves." —Dadgar and Hashimoto in their founders' letter.
"HashiCorp is a well-positioned company providing tools for the cloud software world. They will undoubtedly get intense interest from investors and have a monster IPO." —Marten Mickos, CEO of HackerOne.