Databricks confirmed that it raised new capital this morning at a higher value, as per earlier reports. It announced that the data- and AI-focused company secured a $1.6billion round at a valuation of $38 billion. Bloomberg reported that Databricks was seeking new capital at this price last week.
Counterpoint Global, a Morgan Stanley funds fund, led the Series H. ClearBridge, UC Investments, and Baillie Gifford were also new investors. An additional round was also funded by cash from previous investors.
Databrick's total private funding has now reached $3.5 billion with the new funding. It is notable that this latest funding comes seven months after Databrick raised $1 billion at a $28 million valuation. The new valuation represents a monthly paper value creation of more than $1 billion.
Databricks, which offers open-source and commercial products to process structured and unstructured data from one location, sees its market as a new category of technology. Databricks refers to the technology as a data lakehouse. This is a combination of data lakehouse and data warehouse.
Ali Ghodsi, CEO of Databricks and co-founder, believes that the company's new capital will allow it to secure market leadership.
Large companies have kept large amounts of structured data in data warehouses since the 1980s. Snowflake and Databricks, two companies that specialize in unstructured data storage, have offered a similar solution called a "data lake".
In Ghodsis view, combining structured and unstructured data in a single place with the ability for customers to execute data science and business-intelligence work without moving the underlying data is a critical change in the larger data market.
Data lakehouses are a new category. We think that there will be many vendors in this category. It's a land grab. In an interview with TechCrunch, he stated that we want to race to build it quickly and complete the picture.
Ghodsi pointed out that he is up against well-capitalized rivals and that he needs the funds to be able to compete with them.
It's not like we are up against small startups who get seed funding to help them build this. He said that there are many [large, well-established] vendors. This includes Snowflake and Amazon as well as Google and other vendors who are looking to get a piece in the emerging market.
The company's performance shows that it is on the right track.
Growth
Databricks reached $600 million in annual recurring revenue (ARR), it announced as part of its funding announcement. To better show how rapidly it is growing, it closed 2020 with $425 million in ARR.
According to the company, its ARR number represents 75% annual growth.
This is a fast rate for a company this size. According to the Bessemer Cloud Index top-quartile public cloud software companies are growing at approximately 44% annually. These companies are worth 22x their future revenues.
Databricks' current valuation is 63x its ARR. Databricks is not cheap but should grow at its current pace to make its private valuation easily tenable if it goes public. However, it must not raise new standards for its future performance before it goes public.
Ghodsi declined sharing the timing of an IPO. It is not clear if the company will go for a traditional IPO or if they will continue raising private funds to allow it to direct list when it wants to float. Databricks' current value means that it cannot exit to any of the few mega-cap tech giants or go public.
Why hasn't the company been listed? Ghodsi enjoys a unique position in the startup world: He has unlimited capital. Databricks needed to raise $100 million more in its most recent round. The original target was $1.5 billion. There is plenty of investor interest in the round, which allows its CEO to attract the type of shareholder he desires for his company's post-IPO life. However, there is limited dilution.
He can also hire aggressively and possibly buy smaller companies to fill gaps in Databricks product portfolio. This will allow him to grow from a position with capital advantage, away from the scrutiny of Wall Street expectations. This is the startup equivalent to having your cake and eating it,
However, staying private longer can be risky. Databricks might find it too costly to go public at its private valuation if the market for software companies becomes less attractive. This is unlikely, however, considering the long bull market in software shares in recent years and the confidence Ghodsi holds in his market potential,
Databricks gross margin profile is not yet known. TechCrunch is also curious about the impact of Databrick's fundraising efforts and subsequent spending on near-term Databricks operating liquidity results. We are also interested in how long Databricks gross-margin adjusted CAC paymentback has been since the onset COVID-19. We might find out if we get an S-1.
Ghodsi, his crew and other staff have the freedom to run an effective public company through winsome private markets. You want the same for your company? It's easy: Reach $600,000,000 ARR and grow 75% year-over-year.
