Databricks Raises $1.6B at $38B Valuation

Databricks Secures $1.6 Billion Funding Round

Databricks has officially confirmed reports of a new funding round, achieving a higher valuation. The company, focused on data and artificial intelligence, has successfully raised $1.6 billion, resulting in a $38 billion valuation.

Initial reports from Bloomberg last week accurately predicted this capital pursuit at the stated price point.

Details of the Series H Funding

Counterpoint Global, a fund managed by Morgan Stanley, spearheaded the Series H funding round. Significant participation also came from new investors including Baillie Gifford, UC Investments, and ClearBridge.

Existing investors contributed additional capital to bolster the round.

Rapid Growth and Funding History

This latest funding increases Databricks’ total private funding to $3.5 billion. Remarkably, this raise occurred only seven months after securing $1 billion at a $28 billion valuation.

This valuation increase equates to over $1 billion in paper value creation each month.

The Data Lakehouse Concept

Databricks develops both open-source and commercial products designed for unified processing of structured and unstructured data. The company positions itself as pioneering a new technology category.

They define this technology as a “data lakehouse,” effectively merging the functionalities of data lakes and data warehouses.

Strategic Implications of the Funding

Ali Ghodsi, CEO and co-founder of Databricks, believes this new capital will be instrumental in establishing his company as a market leader.

Evolution of Data Storage Solutions

Historically, since the 1980s, large organizations have relied on data warehouses for storing structured data. More recently, companies such as Snowflake and Databricks have introduced data lakes as a solution for unstructured data.

Ghodsi argues that the ability to consolidate both structured and unstructured data in a single location, enabling both data science and business intelligence operations without data movement, represents a pivotal shift in the data landscape.

A Competitive "Land Grab"

“[Data lakehouses] represent a novel category, and we anticipate numerous vendors emerging within this data space. Therefore, it’s a competitive race to establish dominance and complete the ecosystem,” Ghodsi stated in a TechCrunch interview.

He emphasized the need to rapidly develop and refine their offerings to capture market share.

Facing Well-Funded Competition

Ghodsi also acknowledged the presence of substantial, well-capitalized competitors. He intends to utilize the funds to aggressively compete against them.

“We are not contending with small startups seeking seed funding; rather, we face competition from large, established vendors,” he explained.

These competitors include Snowflake, Amazon, Google, and others vying for a position in the emerging market category that Databricks is defining.

Positive Market Indicators

The company’s performance suggests the validity of its approach.

Strong indicators point towards a successful strategy and growing market acceptance of the data lakehouse concept.

Expansion

Databricks has surpassed a significant financial benchmark, achieving $600 million in annual recurring revenue (ARR), as revealed alongside its recent funding announcement. To demonstrate the company’s rapid advancement, it’s noted that ARR stood at $425 million at the close of 2020.

According to the company, this new ARR figure signifies a 75% increase when compared to the previous year.

This rate of growth is substantial for a company of this scale; data from the Bessemer Cloud Index indicates that leading public software companies, specifically those in the top quartile, are experiencing approximately 44% year-over-year growth. These companies typically command a valuation of around 22 times their projected revenues.

Currently, Databricks is valued at 63 times its existing ARR. While this represents a premium, the company’s current growth trajectory suggests it can expand to a size that justifies its recent private valuation upon a potential public offering, assuming it doesn’t further elevate expectations with additional private funding rounds.

Ghodsi refrained from disclosing a timeline for a possible IPO, and it remains uncertain whether the company will opt for a traditional initial public offering or explore a direct listing after securing further private investment.

Regardless of the chosen path, Databricks has now reached a valuation where its exit options are limited to acquisition by a major technology corporation or an IPO.

The company’s decision to remain private stems from a unique advantage: access to abundant capital. The latest funding round was initially planned to close at $1.5 billion but was oversubscribed by $100 million. This strong investor demand allows the CEO to strategically select shareholders aligned with the company’s long-term vision, while minimizing dilution.

This financial flexibility also facilitates aggressive hiring practices, potential acquisitions to complement Databricks’ product development, and expansion without the immediate scrutiny of public market expectations.

However, prolonged private operation isn’t without potential drawbacks. A significant downturn in the software market could render Databricks’ final private valuation unsustainable for a public offering. Nevertheless, given the sustained bull market in software stocks and Ghodsi’s confidence in the market opportunity, this scenario appears unlikely.

Key details regarding Databricks’ financial performance remain undisclosed, such as its gross margin profile. TechCrunch is particularly interested in understanding the impact of fundraising and related expenditures on the company’s operating cash flow, as well as the evolution of its gross-margin adjusted customer acquisition cost (CAC) payback period since the beginning of the COVID-19 pandemic. An S-1 filing would potentially reveal this information.

Currently, favorable private market conditions allow Ghodsi and his team to operate with the characteristics of a public company, without the associated regulatory burdens. Achieving similar results requires reaching $600 million ARR and maintaining a 75% year-over-year growth rate.