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Welcome Back! Kevin and Valida here. On Thursday Snowflake said it was buying app monitoring startup Observe, confirming our earlier scoop. The sale, which we had previously reported would be roughly $1 billion, provides a decent exit for early investors in the nine-year-old startup, such as Sutter Hill Ventures and Madrona Ventures, both of which also previously backed Snowflake when it was privately held. It also saves Observe from having to raise more money this year. Observe was on track to generate $70 million in annualized revenue by the end of its fiscal year ending this month, up from $30 million in annualized revenue a year earlier, according to three people who reviewed its financial statements. Annualized revenue typically refers to the prior month’s revenue multiplied by 12. But the company, which already shared close ties with Snowflake, was recently burning cash at a pace of about $60 million annually. The financial details, which haven’t previously been reported, suggest the startup would have likely tried to raise more money in the next year, diluting existing investors. The company had already raised $315 million, most recently at a pre-investment valuation of $600 million from a financing announced in July 2025, according to one of the people. Instead, these investors are looking at a sale that could be about 14 times annualized revenue. That’s cheaper than some recent acquisitions of software startups. ServiceNow’s planned $7.8 billion acquisition of cybersecurity startup Armis amounted to 23 times its annual recurring revenue. Google’s pending acquisition of Wiz amounted to about 32 times the $1 billion in annual recurring revenue expected by the cybersecurity startup by the end of last year. Both reflected demand for AI and cybersecurity services. On the other hand, Salesforce in May said it was planning to buy data management firm Informatica for $8 billion in cash, or less than five times the annual recurring revenue of the slow-growing public company. Snowflake should be able to make its new acquisition more efficient just by bringing it into the fold. It will also bring on Observe’s customers, though some, such as Capital One and TopGolf, are already Snowflake clients. Observe competes with Datadog and Cisco’s Splunk, selling so-called observability tools that help developers understand how their applications are performing and spot cybersecurity threats. It stores data in Snowflake’s cloud database service. In an interview, Observe CEO Jeremy Burton acknowledged the decision to build on top of Snowflake made costs considerable early on. But he said the brand recognition and performance of Snowflake helped Observe land deals with large companies. That in turn helped Observe quickly expand its business. “There are a lot of cheap and cheerful observability tools that really can't get the job done when the data volumes get to 10 terabytes, or 50, 100, 500 terabytes a day,” Burton said. “If you want to work at those kinds of data volumes, you need a really reliable data platform underneath.” Observe has used AI to make products and it sells an AI agent that spots problems, making it the latest deal by Snowflake to buff up its AI offerings. Snowflake had $3.35 billion in cash and short term securities on its balance sheet as of October 2025, giving it the ability to do more. “Every Snowflake customer needs observability,” said S. Somasegar, a partner at Madrona Ventures. “There is a huge business opportunity for Snowflake to turn around and say ‘I have the platform, I also have the tools.” —Amir Efrati and Laura Mandaro contributed to this report. | 
