On May 31, 2024, Jay Kreps, the head of Confluent — a streaming platform based on Apache Kafka that enables companies to easily access data as real-time streams — sold company shares worth more than $1.9 million. For nearly two months after that, investors monitored the company’s financial health and market performance.
Taras Chumachenko, co-founder of the Axevil venture ecosystem, which allowed investors to purchase Confluent shares before the IPO window closed and achieved a 256% annual return after the company went public, analyzed how the sale of shares affected the company’s future and revealed which similar companies are promising to invest in now.
The Reasons Behind the Sale of Confluent Shares
Confluent’s business model and market trends suggest that CEO Jay Kreps’ decision to sell shares is part of his personal plans. Investors need to understand that insider trading does not always mean a loss of confidence in the future of the company.
Investors should focus on the proportion of shares sold, not the absolute number. Jay sold approximately 16% of his holdings through a series of equal transactions starting in 2021.
Company Prospects After the Sale of Shares
The company’s business after the sale of shares, judging by the latest updates, shows high stability with an increase in key metrics: 29.3% revenue growth over the last 12 months as of Q1 2024, with revenue of almost $800 million. With a general slowdown in the SaaS market’s growth rate, Confluent is showing positive dynamics.
Revenue from the cloud business as a whole also grew by 46% in Q4 2023 and by 65% over 12 months. This shows the effectiveness of the cloud-focused go-to-market strategy.
Analysts predict that the cloud business will be profitable this year as well. Overall, the industry is projected to grow at a 21% compound annual growth rate (CAGR) from 2023 to 2029.
These factors suggest that Confluent is well-positioned in a growing market, demonstrating leadership dynamics in business development.
Was It Possible to Predict a Successful Exit from Confluent with a 256% Annual Return?
It is almost impossible to predict a successful exit. However, aside from chance, we can identify several factors that suggest investments could yield quick returns:
- The timing of our investment and favorable market conditions were key. We were fortunate to hit peak IPO activity before the IPO window closed.
- We targeted companies in the late-stage and pre-IPO phases, which helped reduce the shortlist.
- The company was already one of the leaders in growing markets. In our case, it was necessary to evaluate not only business indicators but also the growth potential of both the company and the market.
Which Similar Companies Are Promising to Invest in 2024-2025?
Given this experience, venture investors may find it beneficial to concentrate on large and rapidly growing markets, particularly those related to the development of new technologies. For example, our focus is on three large, growing industries: AI, crypto, and ecosystem super apps.
Here are some companies from our portfolio shortlist:
- Anthropic: A leading developer of AI language models, prioritizing safety and ethics,
- Toss: A financial “super app” in South Korea, offering a range of services, including payments, banking, and investment,
- Kraken: A top-ranked cryptocurrency exchange (ranked #2 in the US and #1 in Europe) that we have identified as an undervalued opportunity in the crypto space.
Timing and Evaluating Potential Investments
Prior to investing, analyze the industry landscape to identify key players and growth drivers. It is best to invest in industry leaders (most often these are infrastructure players with a B2B model), with competitive positioning and a clear plan for scaling the business.
If a dominant public company exists in the industry, consider the second-largest player as a potential investment. As a rule, companies’ revaluation on the public and private markets lags.
Rising valuations in the public market often foreshadow similar trends in the private market within 6-9 months. You can use this period to invest at a lower entry valuation.
Be prepared to wait, as no one knows exactly when an IPO or other liquidity event will occur. It is almost impossible to accurately predict exits, so a little luck definitely won’t hurt.
Additional Considerations for European Investments
If we talk about choosing a company for investment in the European market, then, in addition to the previous tips, it is also important to analyze the candidate company’s compliance with all regulatory requirements, as European regulations are often more stringent than in other regions.
The Bigger Picture
In general, it is worth looking at the overall macroeconomic situation in a particular industry, as well as the business indicators and dynamics of a particular company. This has a greater impact on investor sentiment than the small amount of insider selling of shares.
For further context, Taras Chumachenko is a co-founder of Axevil Capital, a global venture ecosystem dedicated to democratizing access to the venture capital market. The platform empowers investors to make independent decisions about their capital by providing detailed analytics and business metrics for investment offerings. 550 investors have already put $50 million in assets under the management of Axevil Capital in the leading tech companies, including Scale AI, Stripe, Klarna, Databricks, Razorplay, etc.
