databricks raises $1b at $28b valuation as it reaches $425m arr
Yet another hour, yet another billion-dollar funding event. That’s the current trend as February begins. This instance involves Databricks, which has recently secured $1 billion in Series G funding, resulting in a post-money valuation of $28 billion.
Databricks is a company concentrating on data and artificial intelligence, working with the information businesses maintain within public cloud environments.
Reports regarding this new funding round surfaced last week. Franklin Templeton spearheaded the investment, with participation from new investors Fidelity and Whale Rock. Databricks also received funding from leading cloud providers, including AWS, Alphabet through its CapitalG division, and Salesforce Ventures. Microsoft, an existing investor, also contributed to this round.
However, that’s not all! Previous investors such as a16z, T. Rowe Price, Tiger Global, BlackRock and Coatue also participated, alongside Alkeon Capital Management.
It’s worth noting that Databricks has successfully raised substantial capital from a diverse group of cloud companies it collaborates with, public investors anticipating future ownership, and private investors realizing a significant return on their prior investments.
The company has distinguished itself through a suite of four open-source products, with Delta Lake, its core data lake offering, taking the lead. It may be remembered that Snowflake, another prominent data lake company, raised nearly $500 million at a $12.4 billion valuation last year before becoming a public company last September with a valuation double that amount. Databricks has already surpassed that public valuation, even as a privately held company.
During a conversation with Databricks CEO Ali Ghodsi in 2019, following a $400 million funding round that valued the company at $6.2 billion, he stated that his company was experiencing the fastest growth of any enterprise cloud software company – a significant claim.
The company generates revenue by providing its open-source products as a software service, and it is achieving considerable success in this area. This success led to intense investor interest in participating in this funding round. In fact, Ghodsi shared with TechCrunch today that the company initially aimed for a more conservative $200 million raise, but the figure increased as more parties sought to invest. Even then, Databricks had to decline some investment offers, after deciding to limit the round to $1 billion.
The additional $800 million in funding will be allocated to mergers and acquisitions, with a focus on acquiring talent, furthering the development of its Lakehouse concept, expanding internationally, and growing its engineering team, according to the CEO.
Ghodsi also emphasized his commitment to maintaining the proportion of revenue dedicated to research and development, a practice that is becoming less common among modern software companies – as many SaaS businesses expand, they tend to prioritize sales and marketing expenditures over product development, a trend Databricks intends to avoid by continuing to invest in engineering expertise.
The rationale behind this decision is Ghodsi’s belief that the rapid pace of innovation in AI means intellectual property can become obsolete within a few years. Consequently, companies aiming to lead in this field must remain at the forefront of their market or risk falling behind quickly.
The Databricks approach appears to be yielding positive results, with the company concluding 2020 with $425 million in annual recurring revenue, or ARR. This represents a 75% increase compared to the previous year and is up from a $350 million run rate at the end of Q3 2020. (Further details on Databricks’ business, products, and growth can be found here.)
Notably, Ghodsi informed TechCrunch that this deal began to materialize in December. Given that today is February 1st, the company secured this substantial funding remarkably quickly.
Finally, with an ARR of $425 million, is the CEO concerned about a valuation representing a multiple of approximately 65x? Ghodsi stated that he is not. He conveyed to his team during an all-hands meeting earlier today that the AI market is a long-term endeavor, one he anticipates being involved in for decades, and that the stock market will inevitably fluctuate. His message, as best as could be understood, was that as long as Databricks continues to grow at its current rate, its valuation will naturally adjust (and this has proven to be the case thus far).
Undoubtedly, Databricks is now more financially robust and substantial than ever before, operating within a maturing market. It remains to be seen how the company will utilize these resources.