Image used : https://cloud-images.ubuntu.com/releases/focal/release/ubuntu-20.04-server-cloudimg-amd64-disk-kvm.img
After following the instructions given on the proxmox cloud init support page, I was able to spawn the vid 123 VM.
I did not follow the network instructions. Unsurprisingly, the network was not connected. To bring 'UP' the network on boot, I had to add firewall=1 in network device settings in hardware tab.
I also needed to add ip=dhcp to cloud-init ipconfig. This was enough to get the VM and IP.
But I was still unable to ssh into the VM, getting the following errors: ( in both host and vm's /var/logs/auth.log )
Unable to ssh xxx.xxx.xxx.xxx : Permission denied (publickey) / Connection closed by ::xxx [preauth]
Looks like the image have PasswordAuthentication no in /etc/ssh/sshd_config. changing that to yes and sudo service ssh reload solved the problem.
How to save cloud init configs in a snippet : https://gist.github.com/aw/ce460c2100163c38734a83e09ac0439a